Andes Fund Sees Easing Peru Political Drama Boosting Bond Appeal

(Bloomberg) -- Peru’s latest political drama is probably over for now, opening an opportunity to buy local government bonds, according to one of the Andean region’s biggest investment funds.

“Peru’s debt remains attractive,” said Dario Valdizan, head of buyside research at Lima-based Credicorp Capital Asset Management, which manages $8.9 billion of mainly Latin American assets and advises on another $10.3 billion of third party funds. Peru together with Chile will emerge from the pandemic with the best debt metrics among Latin American nations, he said in a phone interview this week.

The country will be helped by the potential calming of recent political turmoil, with President Martin Vizcarra set to win an impeachment vote by a safe margin Friday, he said. Some opposition leaders have signaled they are “more open to dialog, to position themselves ahead of April’s general election. We should see less volatility and confrontation,” which is also positive for the local currency, Valdizan added.

Rising copper prices will underpin demand for Peruvian government debt, he said. The nation’s bonds are seen performing well even as the country prepares to sell a record amount of sol-denominated debt to finance next year’s budget deficit. “The market can absorb it. Investors understand that the fiscal solidness of the country isn’t being jeopardized,” he said.

Peru’s sol has lagged behind most emerging market currencies during the pandemic: since the president announced a lockdown March 15, its currency has fallen 0.1%. Across the region, Chile’s has risen 9.8%, Colombia’s has gained 7.1%, and Mexico’s is up 5%. But Argentina’s peso and Brazil’s real have fallen 16.5% and 7.7% respectively in that period.

Investor caution about next year’s election, which remains wide open, will keep the sol undervalued until the second quarter, Valdizan said.

Peru’s economic collapse and intensifying opposition attacks on the government culminated in a fleeting move in recent days to oust both the president and finance minister.

Key parties in congress backed away from a motion to impeach Vizcarra this week after allegations that the head of congress may have sought to involve the military in his ouster sparked a public backlash. Those parties also rallied behind Finance Minister Maria Antonieta Alva during a vote on her ouster this week, in a further sign they don’t want to damage an economy that’s already in deep recession following a devastating pandemic, Valdizan said.

Read more: Peru’s Finance Minister Survives Censure Vote in Congress

Some opposition leaders “have a very big interest in this upcoming election, and therefore I see them adopting a constructive stance,” he said.

“The pieces are falling into place.”

Peru posted the biggest slump among major economies in the second quarter due to a strict lockdown, and still became the country with the most virus deaths per capita. The country’s copper mining industry, the biggest after Chile, is leading the rebound in economic activity since restrictions were relaxed.

Copper prices have risen more than 9% this year, fueled by China’s quick recovery from the pandemic, which Credicorp Capital expects to benefit Peruvian stocks such as Sociedad Minera Cerro Verde SAA. Infrastructure spending in the north of Peru favors cement producer Cementos Pacasmayo SAA and Caterpillar distributor Ferreycorp SAA, according to the fund.

Read more: Peru Economic Contraction Eases After Virus Restrictions Relaxed

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