Thousands of people attend a demonstration to request the resignation of Chilean President Sebastian Pinera in the area surrounding Plaza Italia in Santiago, Chile on October 25, 2019.

Chile President Sebastion Piñera's surprise cancellation of the APEC summit highlights how serious anti-government protests have become in the country, viewed by many as the economic crown jewel of Latin America.

Santiago's stock market was down 3.1% Wednesday, adding to losses after Pinera's announcement about the APEC summit. Since Oct. 21, the Santiago stock market is down about 9%. The Chilean ETF, iShares MSCI Chile Capped ETF was down more than 5.2% Thursday, its worst day since November, 2017.

Mass protests first broke out Oct. 18 over a metro fare hike of about 4%, and have since resulted in 19 deaths.

Piñera's response was initially tough. In a televised address, he said the country was "at war" and that Chileans "should pick sides." But the fare hike was quickly dropped, and the president changed his rhetoric. Within days, the government responded to concerns about income inequality with a fiscal package, which included increases to pensions and wages.

Analysts had then expected a quick resolution to the protests, but the cancellation of the Nov. 16 Asia-Pacific Economic Cooperation summit came as a surprise and indicates the government believes its problems are not short term.

The government also said it would not be able to host a global climate summit planned for Dec. 2 to 13. The gathering of world leaders at the APEC summit was expected to be an important meeting place for President Donald Trump and President Xi Jinping to finalize a first phase trade agreement.

"APEC being cancelled would be a sign the government is struggling to handle [the protests], and it needs to focus its resources on it. It's due to the fact that the protests have not died down, and the attempts by the president to quell them have failed," said Quinn Markwith, Latin America economist at Capital Economics.

Analysts initially had expected Chile to contain the unrest, since Chile is seen as the most stable and economically viable country in the region. The protests have also been accompanied by strikes, which have hit the mining sector.

Chile is also the world's largest copper miner, and already in September production dropped 1.5% compared to a year ago. October production could be hit harder due to strikes. Copper prices are up about 2% since the protests began.

For investors, political uncertainty has become a bigger risk across the emerging and developed world, and it has not impacted all markets equally. In Argentina, for instance, voters on Sunday elected Peronist Alberto Fernandez, a leftist candidate, and the stock market there had fallen sharply even before the election.

Several weeks ago, protests broke out in Ecuador, but its government was able to stop them by eliminating fuel price hikes it had proposed. Populist leaders have been elected in both Mexico and Brazil.

"I think more broadly, we're living in a world of lower growth, lower inflation, lower interest rates and very high levels of inequality, almost everywhere in the world. Salaries have not kept up ," said Alejo Czerwonko, emerging market strategist at UBS Global Wealth Management.

"I think what's going on in Latin America is concerning," he said, "but it's part of a broader discontent that we're seeing in the U.K., Hong Kong and in Lebanon. ... There's a common thread to all these developments and it's unlikely we've seen the end of it. It's unlikely growth will pick up meaningfully. ... And social media is here as an amplifier of the message."

Markwith said Chile's problems have not resulted in financial contagion, but there could be a psychological or social effect on other countries.

"The reason it was shocking to me is that over the last two decades Chile had the reputation of being the most financially responsible compared to the rest of Latin America," said Markwith. "Per capita income, GDP is the strongest in the region."

Markwith said the Chilean protesters seek a change in the constitution, which has not been rewritten since the 1970s. He said it would be viewed as symbolic, since it was associated Augusto Pinochet, leader of the military junta that overthrew Chile's government in the early 1970s.

Citigroup analysts said they are cautious on Chile's market and any constitutional changes would add to uncertainty.

"There are growing calls for a new constitution which is likely to unease investors and corporates as it would carry uncertainties about the depth of the changes. With valuations around historical averages, we remain cautious," the Citigroup analysts noted earlier this week.

Markwith said the economic risks have grown as the protests continue, and the duration will determine how much economic activity is slowed.

"We have estimates now released by the Chamber of Commerce on retail sales, for example. ... We're probably going to see a really sharp downturn in Q4. The risks to growth are substantial now. With regards to financial markets, it's trickier to say where the floor to that is. The government could announce plans to change the constitution this afternoon an that could end the protests by tomorrow," Markwith said.

Teresa Barger, CEO of emerging markets firm Cartica, said she is not entirely surprised by the unrest. She was speaking with a Chilean colleague recently, who described his children as socialists.



"He is very surprised because he said they have been great beneficiaries of everything that's happened in Chile, but they're too young to have lived through the days when we had political repression through Pinochet and poverty. They don't remember that. So for them, it's all about income disparity. He said 'young people today don't know anything other than a well-run government with pretty good infrastructure. Therefore, their expectations are more similar to what we see in the developed world," she said.