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Peruvian Stocks Fall Most Since 2008, Sol, Bonds Sink as Humala Claims Win
By John Quigley - Jun 6, 2011 10:46 AM ET
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Peru’s Nationalist Party Leader Ollanta Humala. Photographer: Cris Bouroncle/AFP/Getty Images
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June 6 (Bloomberg) -- Ollanta Humala claimed victory in Peru’s presidential runoff as voters overlooked his past support for Venezuela’s Hugo Chavez and rallied behind pledges to stamp out corruption and extend a mining boom to the nation’s poor. Reporter Alex Emery speaks with Erik Schatzker on Bloomberg Television's "InsideTrack." (Source: Bloomberg)
Peruvian stocks tumbled the most in two years, the currency sank and dollar bonds fell after former army rebel Ollanta Humala claimed victory in the presidential runoff yesterday and sparked concern that his government will seek more control of the economy.
Peru’s benchmark Lima General Index of stocks declined the most since October 2008, retreating 8.7 percent to 19,378.78 at 9:31 a.m. New York time, before trading was halted. The sol sank 1.2 percent to 2.7962 per U.S. dollar at 10:36 a.m. Yields on dollar-denominated bonds due 2037 rose 20 basis points, or 0.2 percentage point, to 5.94 percent, Bloomberg data show.
Humala, 48, leader of the Nationalist Party and a one-time ally of Venezuelan President Hugo Chavez, had 51.3 percent of votes compared to 48.7 percent for Congresswoman Keiko Fujimori with 88 percent of ballots counted. Polls last week showed the candidates were tied. While Humala shifted during the campaign to defending policies that made Peru the fastest growing Latin American economy over the past decade, investors remain concerned he will raise mining royalties and impose more state control over natural resources.
“The economy isn’t going to be better off if they are start making things difficult for foreign investors,” said Kieran Curtis, who helps manage $3.5 billion at Aviva Investors in London, including Peruvian dollar bonds. “Investors are going to want to get rid of policy uncertainty before putting any money to work.”
The cost to protect Peru’s debt from non-payment with credit-default swaps jumped 20 basis points to 168, the highest since April 27, according to data provider CMA in London.
Record Plunge
The MSCI All Peru Capped Index declined 7.7 percent, the most on record, to 2,562.49.
Local trading in Peruvian stocks is halted, according to an official at the exchange who asked not to be identified because of internal policy. Melissa Vargas, a press official for the Lima Stock Exchange, declined to comment.
To broaden his appeal to Peru’s growing middle class, Humala abandoned rhetoric against foreign mining and natural resource companies used during the 2006 campaign, when he lost the presidency to Alan Garcia by five percentage points. Humala shelved his 198-page campaign platform to back away from an earlier pledge to rewrite the constitution and unilaterally raise royalty fees on mining and gas production.
Peru is the world’s top silver producer, third in copper and zinc and sixth in gold. Export revenue from mineral exports rose by 27 percent to a record $21 billion on surging prices.
Southern Copper
American depositary receipts of Southern Copper Corp. (SCCO), Peru’s biggest producer of the metal, fell 10 percent in U.S. trading to $31.25.
Hochschild Mining Plc (HOC), a producer of silver in Peru, fell to its lowest in four months in London trading, declining 8.6 percent to 499.8 pence.
The yield spread on Peru dollar notes relative to U.S. Treasuries climbed 17 basis points to 209, according to JPMorgan Chase & Co.
Fujimori, the daughter of former President Alberto Fujimori, told supporters last night she is awaiting final results and will “be the first” to recognize a defeat to Humala. Humala said Keiko Fujimori turned a blind eye to the corruption and human rights abuses of her father when she served as first lady during his government from 1990 to 2000.
“While Humala moderated his tone throughout the campaign and certainly compared to the 2006 election, investors are likely to react negatively as uncertainty is still high,” Societe Generale SA strategists led by Benoit Anne in London wrote in a research report.
Waiting for ‘Change’
Humala has pledged to extend the country’s mining boom to the nation’s poor.
“The people have been waiting a long time for change,” Humala told thousands of supporters at a midnight rally in downtown Lima. “It’s not possible to say that the country is progressing when 12 million people are living in extreme poverty without electricity or running water.”
Last night, as supporters chanted “Keep the Gas in Peru,” Humala said he would seek broad backing for his policies and form a government comprised of the most-qualified people independent of their political affiliation.
“Peruvian fundamentals are very strong so it will take a while for him to destroy the economy if he wants to go that way,” said Pablo Cisilino, who helps manage $24 billion in emerging market debt including Peruvian bonds at Stone Harbor Investment in New York. “If Peru didn’t have the fundamentals it has, it would be a very different situation. Theoretically one would have time to get out if the policies Humala’s going to pursue are not market friendly.”
Mining Boom
Foreign investors moved money into Peru last year as metal prices surged and the economy grew at the second-fastest pace in 16 years, prompting the central bank to raise borrowing costs to contain inflation.
Humala as an army lieutenant colonel in 2000 led 50 soldiers who seized and occupied for a week one of Southern Cooper’s mines to protest corruption in Fujimori’s government. His brother, Antauro Humala, is in jail for killing four policemen during the takeover of a highland town in 2005.
In the two weeks after Humala topped the field in the first Round April 10, sol-denominated bond yields rose to a two-year high and the currency fell to a 10-month low.
To contact the reporter on this story: John Quigley in Lima at
jquigley8@bloomberg.net
por eduforever » Lun Jun 06, 2011 11:04 am 
