Playing Peru's Election—If You Dare
Peru's presidential election this Sunday offers investors a chance to bet on which stocks will be winners if pro-market candidate Keiko Fujimori manages to defeat leftist Ollanta Humala.
But such a gamble is strictly short term—and not for the faint of heart.
“The situation is 50-50 for the election,” says Javier Frisancho, a trader at Lima-based brokerage Kallpa Securities SAB. “If [investors] think Keiko wins, buy mainly the junior mining stocks; and if they think the non-pro-market candidate wins, sell short.”
To show just how volatile things are, look at Peru's market the past two days. On Wednesday, Peru stocks plunged 5.9 percent on fears that Humala would win. Then the market rebounded 3.6 percent on Thursday after the latest poll renewed investor confidence that Fujimori will be elected.
For investors who expect Fujimori to win, junior mining stocks like Rio Alto Mining , Candente Copper , Panero Minerals , Rio Cristal Resources , and Alturas Minerals are attractive, says Frisancho.
“They react more quickly than stocks that are solely consolidated enterprises such as Volcan , Creditcorp and Ferreyros ,” he went on to say.
But for the American investor, perhaps the best way to play Peru, is to buy Peruvian ETF iShares MSCI All Peru Capped Index or NYSE-listed Creditcorp, says Francisco Drohojowski, who focuses on Latin America for Weiss Multi-Strategy Advisors.
Although Peru has enjoyed a booming economy, largely driven by commodities exports, Drohojowski says, playing political polls is not smart investing.
“I still need to have a lot of questions answered,” he says. “[Fujimori] is the daughter of a guy who used to be president who is in prison now; it wouldn’t look favorably if she got into office and then pardoned her father.”
“My second biggest question is who will she surround herself with,” he adds. “If it’s going to be the thugs that were around her father, then I would have a lot of question marks as well.”
And Will Landers, who runs BlackRock’s Latin American portfolio, says, stay away from Peru altogether.
“The two people who ended up in the final are the bottom two in terms of market preference,” he says.
“If Humala wins, stocks will react negatively, and if Fujimori wins, it may just trigger a bit of a relief rally— the risk reward is really not there.”