© Reuters. File photo: On December 15, 2017, a money changer holds Peruvian Sol banknotes on a street in the center of Lima, Peru. REUTERS/Mariana Bazo
Authors: Rodrigo Campos, Tom Arnold and Mark Jones
New York (Reuters)-Peruvian President Pedro Castillo appointed a member of his Marxist party as prime minister, but has not yet appointed the Minister of Finance. After leaving the policy direction, the Peruvian currency fell to history Low point, the biggest one-day decline in seven years and economic uncertainty.
The appointment of Guido Bellido dimmed investors’ hopes for a moderate government and brought the safe-haven U.S. Treasury bond spread to its largest level in more than a year.
Refinitiv data shows that bonds issued in 2060 will fall by 2 cents against the US dollar and the transaction price will be 88.3 cents. In 2032, bonds will fall by 1 cent and Century Bonds will fall by 2.8 cents.
The benchmark stock index fell nearly 6% at its intraday low and is expected to close at its lowest point since November. On Wall Street, shares of Peruvian financial companies Credicorp (NYSE:) and Intercorp Financial Services (NYSE:) fell nearly 17% and 10%, respectively, while shares of mining company Buenaventura fell more than 6%.
The local Sol’s exchange rate against the U.S. dollar fell 3.6%, setting a record closing low of 4.068 against the U.S. dollar.
Although the central bank sold $293 million to protect the sol, the decline was still the biggest day in seven years.
Citi analysts said in a report that as the political process unfolds, the Peruvian currency “may continue to be under pressure.” “We expect the central bank to intervene to calm the volatility.”
Investors are cautious about the prospects of Peru under Castillo, who won a trivial election last month with a party calling itself Marxism-Leninism.
Bellido’s appointment on Thursday highlighted the influence of the far-left Free Peru Party on the Castillo government, which began on Wednesday and will continue until 2026.
“It may be too early to draw conclusions, but the start is not a positive start,” said Sailesh Lad of Axa Investment Managers, adding that the asset management company will maintain its small exposure to Peru’s sovereign and corporate debt.
“We think there will be volatility, but I don’t think the panic has already started, we are at a stage where (investors) need to exit the country,” Ladd said. “At the same time, we have not yet reached the stage where we see opportunities.”
The spread between Peru’s hard currency bonds and safe-haven U.S. Treasury bonds on the JPMorgan Chase (NYSE:) EMBI Global Diversification Index rose by nearly 30 basis points to 199 basis points last week-this is since May 2020 The biggest gap.
JPMorgan Chase said in a report that Castillo’s failure to appoint the Secretary of the Treasury has aggravated investor concerns.
The bank’s Diego W. Pereira wrote: “The extremely atypical political situation reinforces our call for persistent scenarios characterized by political, institutional and economic uncertainty.”
The cost of insurance against a Peruvian dollar debt default rose to its highest level in more than a year, breaking through 102 basis points from 84 basis points earlier this week.
Castillo was sworn in most of his cabinet on Thursday night, but Pedro Frank, the darling of financial jobs and the moderate left-wing economist, left the meeting shortly before the ceremony, sparking people’s questions about whether he Query of rejection or loss of job at the last minute.
Castillo faces a balance between maintaining investor confidence and improving the lives of most of the rural bases that voted for him. He stated that he hopes to raise taxes for mining companies and fund health and education reforms.
“A possible constitutional change-and therefore its end result-may hinder long-term investment because companies should be cautious,” said economist Andre Loes (Andre Loes). Morgan Stanley (New York Stock Exchange:).
“The remaining support for growth is the external background, except for Peru’s main export products, whose prices may fall due to falling demand, the external background should remain stable.”
Peru is the second largest copper producer in the world.Its fiscal deficit target for 2022 may be revised upwards. It is expected that approximately US$4 billion of external bonds will be issued in the second half of 2021. Sebastian Vargas said Barclays (LON:) wrote in the notes.