Monday, April 11, 2011

What JPM thinks of Peru's election

Just in case you were wondering:

Official results will likely confirm that Ollanta Humala and Keiko Fujimori will go to the runoff on June 5.  As of 7:50am NYT, the official count of ONPE, Peru's election agency, had reached 71.3% of total votes and showed the following results: Humala 28.7%, Keiko 22.7% and PPK 21.7%. However, we expect that as the ONPE official results reach a higher percentage during the day, the figures will likely get closer to the "rapid counts" compiled by pollster Ipsos-Apoyo and Datum, and the Transparecia civil organization, which average: Humala 31.5%, Keiko 23.3% and PPK 18.8%. The rapid counts are based on representative samples of the actual voting station results that deliver a marging of error of just +/-1%. The results indicate that Humala and Keiko will compete in the runoff scheduled for June 5. These numbers also suggest that Humala obtained around 1%-point above the 30.6% he obtained in the first round election in2006, in which he came ahead of Alan Garcia and Lourdes Flores only to lose against Garcia by less than 5% in the runoff.
The confirmation of the Humala-Keiko second round basically validates our baseline scenario described in the note we published last Thursday, April 7, (see: “Peru: Risk-reward does not justify adding exposure yet” ). While Peruvian assets rebounded in the last two trading sessions of last week as private opinion polls suggested that it would be Keiko the one going to the runoff with Humala instead of PPK, which many market participants feared would have a much tougher time competing with Humala, we still see a very tight race for the runoff. Indeed , tonight several political analysts in Peru suggested that Humala will likely make a more aggressive move to the center during the second round campaign in order to attract the votes of PPK and Toledo. While this may seem implausible to many, it may not be so. If Humala agrees to appoint some conservative politicians or technocrats to his cabinet, it is conceivable that both of them make at least a tacit endorsement of Humala. In fact, in the speech in which he conceded defeat, Toledo said that his party will assess which of the two candidates in the runoff offer more promise to safeguard democracy, human rights and the promotion of "growth with a social face"--all of which suggest that Toledo does not rule out endorsing Humala (plus, remember that Toledo's political career took off in the late 1990s when he staged protests against Alberto Fujimori's dictatorial traits). Meanwhile, Humala said tonight that he will extend invitations to other political parties to support him in the runoff.
Peru: Official results point to Humala-Keiko runoff; tight second round race likely
Humala's Gana Peru party obtained the largest bloc in Congress. Based on the rapid count conducted by Ipsos Apoyo, the 130-member Congress (which in Peru only has a single chamber) would have the following composition: Gana Peru (Humala) 46 deputies, Fuerza 2011 (Keiko) 38, Peru Posible (Toledo) 21, Alianza por el Cambio (PPK) 12, Solidaridad Nacional (Castaneda) 9 and APRA 4. This means that if Humala's Gana Peru bloc manages to reach some political agreement with Toledo's Peru Posible, the two parties could have a simple majority of Congress with 67 deputies.
Although we believe that Keiko can defeat Humala in the runoff, we reckon that the final result remains a close call and still see  the balance of risks as not sufficiently compelling for Peruvian assets at this point. As we anticipated in our April 7 report, the uncertainty about the final outcome of the election was not reduced by the results of the first round. In fact, the runoff should be seen as an entirely different election in which party lines will likely be completely realigned. 

Julio C. Callegari (AC)
(55-11) 3048-XXXX
julio.c.callegari AT
Banco J.P. Morgan S.A.
Luis E Oganes
(1-212) 834-XXXX
luis.oganes AT
J.P. Morgan Securities LLC