Peru’s sol fell the most in 21 months and bonds and stocks declined after opposition presidential candidate Ollanta Humala surged into first place in polls less than two weeks before the April 10 elections.
The sol posted the biggest drop since June 2009, weakening 0.9 percent to 2.8125 per U.S. dollar at today’s close, from 2.7885 on March 25.
Humala, an ally of Venezuela’s Hugo Chavez who narrowly lost the 2006 election, had 21 percent support in a poll published yesterday by Lima-based researcher Ipsos Apoyo, up from 17 percent a week earlier. Humala’s rise caused the sol to slump 1.7 percent in the past two weeks, the worst performance among 25 emerging-market currencies tracked by Bloomberg.
“Markets are going to be extremely volatile over the next two weeks,” said Benito Berber, an emerging-market currency strategist at Nomura Securities Inc. in New York. “A lot of people in the market expect Humala will lose in the end but local investors are a bit more worried.”
Humala, who lost a 2006 runoff to President Alan Garcia by 5 percentage points, seeks to increase state control over the economy, including Peru’s ports and natural gas reserves. His rise in polls has led investors to sell the Andean nation’s bonds.
The yield on Peru’s benchmark sol-denominated bond due in 2020 rose 5 basis points, or 0.05 percentage point, to a two- year high of 6.67 percent on concern Humala’s proposals may harm growth prospects and foreign investment in the $153 billion economy, according to Citigroup Inc.’s local unit. The bond’s price fell 0.36 centimo to 108.13 centimos per sol.
The Lima Stock Exchange’s main index fell 5.2 percent, the biggest drop since June 2009. The slump is the biggest of the 90 primary indices tracked by Bloomberg.
Peru’s central bank sought to stem today’s decline in the currency by issuing sol-indexed certificates of deposit for the first time since October 2009. The central bank sold 300 million soles ($107 million) of adjustable three-month certificates yielding 0.25 percent, after offering to sell as much as 800 million soles, it said on its website.
Humala’s plan to impose a mining windfall tax will stunt investment in Peru’s mining industry and jeopardize future revenue for the government, according to Carlos Galvez, Chief Financial Officer of Cia. De Minas Buenaventura, the country’s largest precious metals producer.
The central bank expects Peru to receive $30.1 billion of investment in mining, energy and infrastructure projects between 2011 and 2012.
“A Humala presidency will most likely mean gradual fiscal deterioration,” Berber said.
According to the Ipsos Apoyo poll, former President Alejandro Toledo, who had been the frontrunner in polls since the start of the year, fell to 20 percent support from 23 percent a week ago. Support for Congresswoman Keiko Fujimori was unchanged at 19 percent.
A runoff vote between the two leading candidates will be held June 5 if no candidate wins more than 50 percent in the first round of balloting.
Humala may face Fujimori in the runoff unless Toledo makes a comeback before the first vote, Barclays Plc. said in an e- mailed note to investors today.
“Such a scenario could cause anxiety in the markets,” given Humala and Fujimori’s relatively high rejection rates, Barclays analysts Alejandro Arreaza, Alejandro Grisanti and Roberto Melzi wrote.
Ipsos Apoyo’s poll showed support for Pedro Pablo Kuczynski, a former Finance Minister and ex-chairman of First Boston International, rose 1 percentage point from a week ago to 15 percent. Former Lima Mayor Luis Castaneda was unchanged at 14 percent, the researcher said.
The pollster contacted 1,986 people in 24 of Peru’s 25 regions from March 19 to 25. The poll had a margin of error of 2.2 percentage points.
Humala would lose a runoff vote with Fujimori, Toledo and Castaneda, and would tie with Kuczynski, the poll shows.
“The second round is a different ballgame,” Alfredo Torres, general manager of Ipsos Apoyo, said in an interview with America Television yesterday. “New strategies and alliances emerge so the numbers could change a lot.”
According to a poll published yesterday by researcher CPI, Humala had 21 percent support and Toledo and Fujimori each had 19 percent.
To contact the reporter on this story: John Quigley in Lima at email@example.com