Analysis: Peru markets and miners fear Castillo, see silver lining in
split vote
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[June 08, 2021] By
Marco Aquino, Fabian Cambero and Rodrigo Campos
LIMA/SANTIAGO/NEW YORK (Reuters) - Peru's
market and mining watchers are wary of a presidential election victory
for socialist Pedro Castillo, who was building a narrow lead on Monday,
but see a potential silver lining: a sharply split vote could hinder his
plans for dramatic reforms.
The leftist candidate has rattled miners and investors since a surprise
win in the first-round vote in April, pledging to tear up Peru's
decades-old constitution and take up to 70% of profits from firms mining
in the country's copper-rich Andes.
![](http://archives.lincolndailynews.com/2021/Jun/08/images/ads/current/LPL_small%201.gif)
On Monday the former teacher and union leader held a razor-thin, though
growing, lead
https://www.reuters.com/world/americas/
peru-awakes-uncertain-future-with-polarized-vote-
knife-edge-2021-06-07 over his market-friendly conservative rival Keiko
Fujimori in the run-off vote. The country's sol currency and equities
sank
https://www.reuters.com/world/
americas/peru-could-face-capital-flight-if-castillo-clinches-presidency-jpmorgan-2021-06-07.
A final tally may take days to arrive and there could be challenges to
the results.
"The only positive factor - even if Castillo wins - is that the result
of the election shows you that the country is very divided," said
Guillaume Tresca, senior emerging market strategist at Generali Asset
Management.
"And with a divided congress it will be very hard for him to implement
structural and disruptive reforms."
Whoever wins the presidential vote, Peru will have a deeply fragmented
legislature with ten diverse political parties, none of whom hold a
majority. Castillo's Free Peru socialists will have the largest bloc,
followed by Fujimori's conservatives.
Peru's congress has relished clashing with the presidency in the past.
Last year, it pushed through a controversial impeachment process against
then-President Martin Vizcarra that forced him to step down and sparked
deadly protests.
Mining firm executives in the country stayed mostly quiet on Monday as
they waited for the final outcome.
Roque Benavides, chief executive of local miner Buenaventura, told
Reuters that miners could agree to things like voluntary contributions
to finance local infrastructure projects but more drastic measures like
nationalizations would derail investments.
"I think that neither of the two candidates can impose their position
and therefore I think that the idea of them making dramatic, drastic
changes is very debatable," he said.
Francisco Acuña, a Santiago-based analyst at mining consultancy CRU,
said it was quite likely the new government would need to negotiate and
reach consensus with companies.
![](http://archives.lincolndailynews.com/2021/Jun/08/images/ads/current/charrons_bch041713.png)
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![](../images/060821PICS/busine43.jpg)
Peru's presidential candidate Pedro Castillo addresses supporters,
in Tacabamba, Peru June 6, 2021. REUTERS/Alessandro Cinque/File
Photo
![](http://archives.lincolndailynews.com/2021/Jun/08/images/ads/current/fcs_funeral_lda082613.png)
"It is evident that the country is torn. Whoever wins, the margin will
be minimal," he said.
(Graphics : Peru's stocks, currency rattled by election -
https://graphics.reuters.com/
PERU-ELECTION/MINING/
ygdpzxkompw/chart_eikon.jpg)
RADICAL CHANGES
Gustavo Medeiros, deputy head of research at emerging market-focused fund
manager Ashmore Group, said that a Fujimori presidency would bring less risks of
"populism" than Castillo, though there was much still unknown about the leftist.
"Whoever wins is going to have to govern with a very fragmented congress and
that is going to complicate any radical structural legislative changes," he
said, adding that market weakness from a Castillo win could create a buying
opportunity.
Castillo said in a statement on Monday evening that if confirmed as president he
would respect the central bank's authority and that he was not planning
nationalizations or expropriations, but added a tax overhaul on mining was
needed to help pay for planned healthcare and education reforms.
Julio Ruiz, chief economist for Mexico and Peru at Brazilian bank Itau, said a
win for Fujimori - who has pledged to keep in place market-friendly policies
that underpinned Peru's economic growth in recent decades - would be more
positive for markets.
![](http://archives.lincolndailynews.com/2021/Jun/08/images/ads/current/graue_sda_042021.png)
A win for Castillo, said Ruiz, could lead to pressure on the exchange rate and
raise the probability that the central bank would hike rates before the end of
the year to avoid inflationary pressures.
Alejo Czerwonko, Chief Investment Officer for Emerging Markets Americas at UBS
Global Wealth Management, said a Castillo win would lead to a sell-off in
Peruvian assets, though he faced challenges turning his rhetoric into reality.
"Whether he manages to deliver will depend on how well he navigates the
institutional constraints he will face given his party only enjoys 42 out of the
130 seats in congress," he said.
"Key to watch is whether he is successful in his attempt to push for a
constitutional reform."
(Reporting by Marco Aquino, Fabian Cambero, Rodrigo Campos, Stefanie
Eschenbacher, Marc Jones, Tom Arnold and Karin Strohecker; Writing by Adam
Jourdan; Editing by Rosalba O'Brien)
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