Wednesday, April 13, 2011

The Peru political risk part of today's Flash update

At around 2pm EST today a Flash update went out to subscribers that named a Peru exposed stock as offering a good short-term trade possibility. Along with the stock-specific section and reasons for the call, we also checked out the latest in the fast breaking Presidential election climate in  Peru. Here's what was written on that subject:

Peru political risk
Meanwhile, in more general terms the main risk factor to a trade in [named stock] is considered here. Things are still very early stage in the type of post-election horse trading that goes on between surviving and losing parties/candidates. It's too soon to make many firm statements about the second round runoff except the following:

1) It's too close to call between Keiko Fujimori and Ollanta Humala at this stage.

2) Importantly, if Humala wants to win the election it's becoming very clear that he will have to move to the centre of the political spectrum (be that to a greater or lesser extent) in order to win enough support. So far in these early days there's also been a clear separation of issues by the Humala camp, with the Humala party making strong statements to the effect that the Peruvian economic model would not be touched or tampered with under a Humala presidency. Meanwhile, political issues that are fully or mainly separate from the economy have tended towards the same more radical, militant messages that found favour with over 30% of Peru's voting public last weekend. It really is too soon to say anything definite, but this is a positive signal for those of us that are concerned with Peru as an investment destination (nearly all of you) rather than as a place to live.

3) Humala has been making more noise these first few days and the Keiko Fujimori camp has been biding its time. This means that Humala is capturing more headlines right now but that won't continue. The Keiko camp is clearly biding its time (remember this is a near 8 week campaign before the runoff vote). The one-way news traffic from the Humala side of the argument that's been spooking the market recently is temporary in nature.

Overall, the political risk of this round two runoff and the eventual President it will give Peru is now way overstated and Peru exposed issues are due a rebound. Your author suggests [named stock] as a good way of playing the rebound when it comes because it will be able to supply its own batch of good news to the market soon as well. However, stocks such as Candente ( Sulliden ( and Rio Alto (RIO.v) have also been hit and offer decent alternatives.

Disclosure: I have a long position in Rio Alto Mining (RIO.v). No position in Candente Copper ( or Sulliden (