Peru’s presidential elections will likely result in market-friendly economic policies, regardless of who wins, despite the race still being too close to call, sources told LatinFinance.
“Either way, Peru is showing continued democratic stability,” said an investment manager in New York. “Even if the results were reversed, there wouldn’t be a dramatic difference.”
Pedro Pablo Kuczynski (PPK), a former World Bank economist and Wall Street banker, holds a narrow lead over Keiko Fujimori, the daughter of an imprisoned former president. With 92.6% of the votes counted, PPK is ahead with 50.3%, while Fujimori has 49.7%. The final results may not be known until later this week.
According to Jonathan Lemco, senior investment strategy analyst at Vanguard, the market might find it difficult to distinguish between the two candidates. “Whoever wins will continue with the current fiscal policies,” he said.
The market reacted favorably to PPK’s slight lead but it will seek more clarity on his economic proposals if the advantage holds, said Luis Olguin, portfolio manager at NN Investment Partners. PPK pushed for aggressive tax cuts on the campaign trail, while Fujimori has promised higher government spending and measures to help small and medium-sized businesses, he said.
PPK’s experience in the capital markets gives investors confidence in how he will handle the economy but he still faces challenges at home, where a drop in commodity prices has had widespread effects.
“Peru’s growth benefited from the commodity cycle,” Olguin said. “The right decisions need to be made to continue on a positive path because commodities may no longer be a tailwind.”
The New York-based investment manager said the next president needed to “reinvigorate growth” by weaning the economy off of its dependence on commodities and creating healthy levels of internal consumption.
Despite the drop in commodity prices, Peru is expected to post GDP growth of around 4% this year, while other countries in Latin America slip into the second year of recession. Peru, along with Mexico and Chile, is seen as one of the strongest sovereign credits in Latin America, Lemco said.
Whatever the result, the sovereign could seek fresh funding in the international bond market after the election results are final. “I wouldn’t be surprised to see them in the market before the end of the year, but it all depends on market conditions and what kind of spread they can get,” Lemco said.
Peru raised €1bn ($1.14bn) from the sale of a euro-denominated bond in February this year. Kallpa Generacion remains the sole Peruvian corporate to tap the cross-border bond market so far this year, while agro-industrial trader Camposol completed a debt exchange offer last month.
“Corporates don’t need to come to the market right now. They’re cutting costs in response to the commodities downturn,” said a bond buyer in New York.
Olguin said “opportunistic issuances” could follow the elections but are “unlikely to be as high as in 2012 to 2014, when many Peruvian corporate issuers used the international capital markets for refinancing and growth.”