Populist Humala Wins Election, Negative For Peruvian Markets
By Win Thin
Exit polls and quick counts at some polling stations show populist Humala winning 51.5%-48.5% over Fujimori in the second round presidential vote. If this is confirmed in official results, it would be very negative for Peru near-term. While Humala has professed his desire to become another Lula, there are of course suspicions that he still wants to be another Chavez. This will take weeks, if not months to sort out as Humala unveils his cabinet. Let’s look back at the Brazilian example, when investors had no idea what to expect from then-populist Lula. He won his first term after the second round vote October 27 2002. The real weakened almost 80% vs. the dollar in the six months from April 10 to October 10 2002, when it peaked at 4 per dollar as Lula gained in the polls. From October 27 2002 to January 1 2003 when Lula was inaugurated, the real recouped about 5% of its losses but trading was very choppy and the real remained on its back foot. It wasn’t until mid-February 2003 that a sustained BRL rally began to take hold. At that point, investors became comfortable with Lula’s economic team, his cabinet, and his general attitudes towards markets. The bottom line was that Lula inherited a strong, vibrant economy and was smart enough not to mess with success. Will Humala learn that lesson too?
Regaining market confidence is what Humala will need to do in his crucial first few months. He has reportedly asked some orthodox economists from the Toledo administration to be advisors, and he has also gotten an endorsement from former central bank President Dancourt. However, foreign investors will remain wary until his economic team has been finalized along with the rest of his cabinet, preferably before his inauguration July 28. Humala’s victory could lead to a near-term spike up in gold, zinc, and copper due to uncertainty about what foreign firms are going to do with regards to investment and the development of mining resources in Peru. The sol and the equity market are likely to remain under pressure near-term until Humala’s message is clear. Let’s hope that happens sooner rather than later, and that Humala does not mess with success either.