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Could Peru Threaten Global Economic Recovery?

Peru
Steve Allen | Brand X Pictures | Getty Images
Peru

The turmoil in Peru may not exactly match up to what’s happening in Libya, Japan or some of the other world’s hotspots, but traders are carefully watching political upheaval in the metal-producing South American nation.

Peruvian stocks got hammered Monday on news that leftist political candidate Ollanta Humala had taken the lead in the latest polling. The Peru Lima General Index fell about 4 percent as investors worried that voter mood was turning toward a nationalization of the economy that would restrict economic growth.

While the situation will take a back seat to the more severe military conflict in Libya, Peru’s place in the global economic recovery story is significant.

The nation is the second-leading copper producer, the largest silver producer and the fifth-largest gold producer. Copper, though, would be the biggest concern as the metal is seen as a key barometer of economic activity.

Humala, who once palled around with Venezuelan strongman Hugo Chavez, has campaigned on a platform of renegotiating trade agreements and taxing windfall profits from miners. The metals trade accounts for the bulk of Peru’s exports.

Though Peru stocks were in a mild relief Tuesday and the iShares MSCI All Peru Cap Index ETF was around flat, concerns over the country’s direction likely will persist. EPU has seen $75 million in outflows since March 11, according to Dave Lutz, managing director of trading at Stifel Nicolaus.

Closer to home, companies on the US exchanges could feel pressure from the country’s political vagaries.

Southern Copper owns two mines in Peru and fell 2.3 percent Monday along with the Peruvian stocks. Freeport McMoRan has one mine there and slipped 1.6 percent Monday. Both stocks were around flat in Tuesday morning trade.

“The polls will drive the market over the next three weeks,” Lutz says. “If Humala is up, it will be down.”

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