Peruvians head to the polls

Wells Fargo Research Team Wells Fargo

Summary

Peruvian politics have been unsettled for some years. Multiple Presidents have been impeached or forced to resign, resulting in elevated political risk across the country. Last year was no different as President Vizcarra was impeached as a result of corruption allegations, while his successor, Manuel Merino, was forced to resign amid social unrest after just a few days in office. Since Merino's resignation, Peru has operated under an interim President; however, this weekend elections will take place to determine a new "full-time" administration as well as all seats in Congress. The outcome is far from certain as polls suggest no candidate has a clear path to the Presidency; however, market friendly candidates have made a late push according to recent poll data.

The Peruvian sol has rallied the last few weeks on the prospects of a business friendly candidate taking office. But, with no candidate likely to receive a majority of votes this weekend, we expect a runoff election to take place in June. The composition of candidates in the runoff election should have an influence over the short-term path of the Peruvian currency. Should the market friendly Hernando de Soto make it to the second round of the election, it is possible the currency could continue to rally. However, should the runoff vote be comprised of left-leaning candidates, we would expect the recent rally to stall and for the currency to come under some renewed pressure. Only until after the President and Congress are decided do we expect longer-term and sustained strength in the Peruvian currency.

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Wells Fargo Research Team

Wells Fargo

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