Disastrous day for Peruvian stocks and currency after Castillo’s inauguration

RIO DE JANEIRO, BRAZIL – A disastrous day for the stock market, with a fall of 5.8%, while for the Peruvian currency it has been the first business day in the local financial system after the inauguration of the leftist President Pedro Castillo to the Peruvian Executive.

The general index of the Lima Stock Exchange fell by 5.8% at the close of Friday’s trading, while the selective index fell by 4.8%, with a sharp drop of 16% for the country’s most important business and financial group, Credicorp.

Likewise, the dollar exchange rate rose more than 3% on this day, crossing the barrier of four soles per dollar, in spite of the fact that the Central Reserve Bank (BCR) went out to sell US$293 million to stop the rise.

The reaction of the stock and financial markets responds to the announcements made by Castillo in his first speech to the Nation, last Wednesday 28th, as well as to the appointment of leftist legislator Guido Bellido as president of the Council of Ministers.

REJECTION TO CONSTITUENT ASSEMBLY AND PRIME MINISTER

“It responds to the president’s announcements, the speech of the 28th where he confirmed the insistence on the Constituent Assembly, that brings a lot of uncertainty to the market, and also the appointment of Bellido as prime minister”, declared the head of analysis of the brokerage company Kallpa SAB, Marco Contreras.

About Bellido, he pointed out that “he is a man of the radical left and obviously he is not well regarded by the market, he does not bring confidence to the investor and this has been translated in the prices of shares today, (but) not only in shares but also in other markets where we have seen a considerable devaluation of Peruvian assets”.

“In general, investors take these measures, these appointments badly and all the markets go out to sell Peruvian assets because they do not trust Castillo’s government”, remarked Contreras.

MAIN STOCKS FALL MORE THAN 10%.

The Lima Stock Exchange had a “quite negative” behavior during the day, with falls of 16% for Credicorp, 12% for the financial group Intercorp, 11% for the heavy machinery group Ferreyros, and 10% and 9% for the mining companies Volcan and Minsur, respectively.

“It has been a rather abrupt movement today, with quite a lot of risk aversion, fear, and distrust on the part of the investor”, expressed Contreras.

He recalled that after the first round of elections, in which Castillo led the polls, the stock market also had “a negative reaction, but it had not been as abrupt as today’s.”

The most recent episode in which the Peruvian stock market suffered such a steep fall was the election in 2011 of Ollanta Humala (2011-2016), of moderate nationalist tendency, which led to a 14% collapse of the general index and led to a closing of the stock market until the following day, Contreras recalled.

DOLLAR AT MORE THAN 4 SOLES

Regarding the dollar exchange rate, the analyst affirmed that the rise of more than 3% this day has been “a quite exaggerated variation and very uncommon to see,” which has already surpassed the four soles barrier.

Another important element that has contributed to the distrust of the financial markets has been the lack of appointment of a Minister of Economy and Finance, due to the last-minute resignation of the economist Pedro Francke.

Contreras said that Francke “is a person who is not liked by the market either, his left-wing political orientation is known, but it was practically a certainty that he would be in the ministry, he is not of such a radical faction as Castillo or Vladimir Cerrón (the president of the ruling Peru Libre party).”

NO MINISTER OF ECONOMY IN SIGHT

The removal of the economist now “lends itself to speculations, now who will enter, perhaps someone closer to the Peru Libre party, which would be something quite bad for the market and the investor’s confidence,” said the expert.

After the day tinged with negativism, Contreras expressed his doubts that Castillo “intends to give relief” to the market but added that financial agents will be very attentive to the new Minister of Economy, as well as to the continuity of the head of the Central Reserve Bank because both positions are in charge of the country’s macroeconomic stability.

“What the market expects is that they are suitable, prepared people, with a lot of experience in the sector,” he noted.