Bloomberg News

Peru Stocks Jump Most in Two Years as Election Polls Show Tie

June 02, 2011

June 2 (Bloomberg) -- Peru’s benchmark stock index jumped the most in more than two years, erasing yesterday’s decline, after polls showed former army renegade Ollanta Humala hasn’t taken a lead over Congresswoman Keiko Fujimori in opinion polls before this weekend’s presidential runoff.

The Lima General Index climbed 7.2 percent to 21,736.48 at 4:43 p.m. New York time after private surveys today showed the candidates in a statistical tie. That’s the gauge’s biggest gain since November 2008. Yesterday the index plunged 5.9 percent as a private poll showed Fujimori’s lead shrinking and research company Eurasia Group said Humala will likely win.

“The market is going to be very volatile as these polls issued in international markets arise,” said Cesar Perez-Novoa, managing director of Santiago-based brokerage Celfin Capital.

Fujimori had 51 percent support while Humala had 49 percent before the June 5 vote, Alfredo Torres, the director of pollster Ipsos Apoyo, told reporters in Lima today, putting her lead close to the 1.8 percentage points margin of error. Polls by Datum Internacional and CPI also showed a dead heat, the heads of the polling firms said. Peruvian law bars researchers from publishing polls in local media in the week before the election.

Peru’s sol gained 0.7 percent to 2.7580 per U.S. dollar from 2.7783 yesterday. The yield on Peru’s benchmark 7.84 percent sol-denominated bond due August 2020 fell 14 basis points, or 0.14 percentage point, to 6.60 percent, according to Deutsche Bank AG’s local unit.

Humala’s Policies

The cost to insure Peruvian government debt against default for five years with credit-default swaps has soared 18 basis points since April 8, the final day of trading before Humala won the first round of presidential balloting, to 148. The cost rose to the highest since July 2009 on April 27, according to data provider CMA, which is owned by CME Group Inc. and compiles prices quoted by dealers in the privately negotiated market.

Humala, a one-time ally of Venezuelan President Hugo Chavez, pledges to revise Peru’s free-trade accords and change the constitution to strengthen the government’s role in the $153 billion economy, while Fujimori has promised to foster policies aimed at drawing foreign investment. Peru, which led Latin America with annual economic growth of 7.2 percent since 2006, won an investment grade rating on its foreign debt from Standard & Poor’s in 2008 and Moody’s Investors Service in 2009.

Peru’s benchmark stock index jumped 9.8 percent in May as opinion gauges showed support for Fujimori climbing. The sol touched a three-year high of 2.7481 on May 25.

Army Rebellion

Stocks and the sol fell yesterday after Eurasia Group said Humala had the best chances of winning this weekend’s election, and a private poll commissioned by an investment bank showed Fujimori’s lead over Humala narrowed to less than 1 percentage point.

“Humala looks likely to win a larger share of undecided voters, who are mostly poor and therefore tend to be less concerned about the risks commonly associated with” the former army rebel, Eurasia Group analyst Erasto Almeida said in a statement yesterday. “Despite the tight race, the risk of serious post-election political instability is low.”

Investors have been wary of Humala’s past support of armed rebellion. In 2000, as a lieutenant colonel, he led 50 soldiers who seized and occupied for a week a Southern Copper Corp. mine to protest corruption that beset the government of Alberto Fujimori, Keiko’s father, who ruled from 1990 to 2000.

Columbia MBA

Following last month’s decline in polls, Humala backed away from earlier pledges to levy a mining windfall tax and ban natural gas exports. He said in a May 23 interview that he’ll seek consent from investors for any policy overhauls.

In a May 29 televised debate, Humala said he will respect the country’s free-trade agreements if he’s elected to office and he will use mechanisms within the accords to protect Peru’s national interests.

Keiko Fujimori, who is 36 years old and holds an MBA from Columbia University, said she favors keeping Peru’s economy open to foreign investment. Her father, who is in jail for directing a death squad, led a fight against Maoist guerrillas and laid the foundation for Peru’s economic boom by slashing inflation from 7,650 percent to 3.5 percent during his time in office.

Peru is set to receive $50 billion of mining, energy and infrastructure investments in the next three years, the Finance Ministry estimates. Foreign direct investment was $7.32 billion last year and may rise to $8.17 billion in 2011, the central bank says.

Demand, Investment

Booming consumer demand coupled with private investment in mines, power plants and infrastructure fueled an 8.8 percent economic expansion last year, the second fastest in 16 years.

“We’ve had a long campaign, presidential debates and numerous polls, and the market still isn’t sure who’s going to win,” said Bret Rosen, a Latin America debt strategist at Standard Chartered Bank.

Financial markets will likely drop should Humala win, said Pablo Cisilino, who helps manage $24 billion in emerging-market debt including Peruvian bonds at Stone Harbor Investment in New York.

“The fundamentals in Peru are super strong,” he said. “If the markets sell off significantly, we’ll probably buy” dollar- or sol-denominated bonds, he said.

“Whatever sells off the most,” Cisilino said.

--Editors: {Brendan Walsh}, {Glenn Kalinoski}

To contact the reporters on this story: {Andrea Jaramillo} in Bogota at ajaramillo1@bloomberg.net; {John Quigley} in Lima at jquigley8@bloomberg.net

To contact the editor responsible for this story: David Papadopoulos at papadopoulos@bloomberg.net


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