Political Risk Latin America Blog @PolRiskLatam

Peru banks/asset managers: A nervous wait

Posted in News and Articles, Political Risk by politicalrisklatam on June 13, 2011

by The Economist Intelligence Unit, June 10th, 2011.

It is too early to gauge the impact of Ollanta Humala’s election win on Peru’s fast-growing financial sector. But that won’t stop firms from worrying about what the radical nationalist might have in mind for them.

Something approaching panic gripped the main Peruvian stock exchange on Monday following a win by leftist presidential candidate Ollanta Humala in a runoff election on June 5th. Trading was suspended twice as the market plunged, and the main index ended the day down by more than 12%, the worst one-day sell-off in the market’s history.

Mining stocks led the rout as investors worried that Mr Humala would follow through on his stated intention to increase royalties. As far as financial firms, however, the new president has yet to give any indication that he will do anything specific to target banks, which have been booming along with the rest of the country over the last decade. Also, although Mr Humala has indicated that his government intends to make some changes in the pension system—currently dominated by private sector pension fund managers known as AFPs (administradoras de fondos de pensiones)—a law passed just before the runoff vote limits the degree to which the government can interfere with the system.

To paraphrase Franklin D Roosevelt, at the moment the only thing that Peru’s financiers have to fear is fear itself. Uncertainty over Mr Humala’s plans for the economy could lead to a pause in investment plans, impacting banks’ corporate loan portfolios. It could also lead to a move back toward the US dollar. So far, however, the financial sector’s key players are sitting tight. The AFPs announced that they did not participate in the stock market sell-off and were seeking buying opportunities. Indeed, the day following the sell-off, the market bounced back by nearly 7%. (continue reading… )

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