Elections matter in almost every economy, but maybe even more so in Latin America. Several once-promising growth stories have been all but erased in the wake of elections that brought in who promised equality, but delivered little more than shared misery and more corruption. Venezuela is perhaps the best recent example, though there are others. Right now, investors are fretting over what this weekend's election in Peru may hold for the country, its citizens and investors.

TUTORIAL: Top Stock-Picking Strategies

More of the Same or a Turn to the Left?
The June 5 election in Peru has come down to a very close contest between Keiko Fujimori and Ollanta Humala. Ms. Fujimori's platform basically represents a "more of the same" continuation of existing policies; policies that have brought a lot of growth to Peru and considerably more economic stability.

Ollanta Humala is more of an unknown quality. A former military officer, Humala fought against Peru's Shining Path (a Maoist insurgency), but also led an unsuccessful military revolt against the government of Alberto Fujimori - Keiko's father and a former President of Peru now in jail for a host of crimes committed during his administration.

At this point, Humala's rhetoric sounds fairly similar to that of Lula da Silva, the successful past President of Brazil who managed to balance social reform with economic growth. Unfortunately, investors are nervous about Humala's ties to Venezuela's Chavez and Bolivia's Morales - two leftist leaders who have done significant harm to their respective economies with their policies. So far it seems that Chavez and Morales embrace Humala more than he does them, but investors often assume the worst in these cases until proven wrong.

What's at Stake
Peru has been one of the biggest Latin American success stories of recent years. While the rebound in the prices of commodities like copper and gold has certainly helped, Peru has posted strong GDP, controlled inflation and built increasingly strong reserves due to prudent fiscal policies.

Depending upon how the election goes, that could all be up in the air. While there are relatively few publicly-traded Peruvian companies accessible to American investors (that is, trading on U.S. exchanges with direct listings or liquid ADRs), the ramifications could still be significant for them.

Companies like Minas Buenaventura (NYSE:BVN) is a case in point. While Ms. Fujimori has discussed higher taxes on mining companies - often a popular political move with a populace that believes mineral wealth is not shared fairly - that certainly is less troubling that the outright nationalization that could be on the table if Mr. Humala proves more like Chavez or Morales than Lula. Likewise, Southern Copper (Nasdaq:SCCO) has a major stake in the future of Peru's policies towards mining.

Creditcorp (NYSE:BAP) is a company with much broader exposure to the general health of Peru. A large banking company, Creditcorp is like most banks in that its fortunes are tied to the health of the Peruvian economy - with job growth, business creation and inflation being preeminent concerns.

After these three companies, the pickings get slimmer. Cementos Lima (Nasdaq:CEMTY) is technically tradeable, but the volume is almost non-existent. Elsewhere, companies like BBVA (Nasdaq:BBVA), Telefonica (NYSE:TEF) and Bank Of Nova Scotia (NYSE:BNS) all have exposure to Peru, but not to such a high degree that the companies or stocks would be seriously threatened by turbulence or anti-free market moves in Peru.

Few Ways to Play
Unfortunately, investors have limited options when it comes to trading on the lead-up and aftermath to this election, to say nothing of sharing in Peru's economic development. Credit default swaps may be the best vehicle for trading volatility and nervousness (particularly since Peru has the reserves to fight volatility in the currency), but those are not typically available to individual investors.

Likewise, companies like Cerro Verde, Alicorp, Austral Group, Candente Copper, and Ferreyros may be names to watch in Peru, but hardly any American investor is in position to buy those stocks on Lima's exchange. That leaves Creditcorp and the iShares All Peru Capped Index ETF (NYSE:EPU) as perhaps the best options. The ETF is pretty liquid and although extremely weighted towards commodities (nearly 70% of its holdings), it does trade as something of a proxy for Peru in general.

Hope for the Best, Prepare for the Worst
Hopefully the winner of Peru's election will not turn his or her back on the progress made in Peru over the last decade. While inequality and poverty are still major issues, life is better than it was before and a sustained commitment to economic development is a key part of continuing that progress. Investors should be cautious, but Peru is an emerging winner. If the new administration shows a commitment to ongoing economic development, it is a market well worth watching. (For related reading, also take a look at The Latin American Frontier.)

Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!

Related Articles
  1. Stock Analysis

    Should You Follow Millionaires into This Sector?

    Millionaire investors—and those who follow them—should take another look at the current economic situation before making any more investment decisions.
  2. Professionals

    What to do During a Market Correction

    The market has corrected...now what? Here's what you should consider rather than panicking.
  3. Mutual Funds & ETFs

    ETF Analysis: Market Vectors EM High Yield Bd

    Learn more about the Market Vectors Emerging Markets High Yield Bond ETF, a fund dedicated to subinvestment grade foreign debt issues.
  4. Mutual Funds & ETFs

    ETF Analysis: First Trust Tactical High Yield

    Find out more about the First Trust Tactical High Yield fund, a debt security-focused ETF designed to produce high income.
  5. Mutual Funds & ETFs

    ETF Analysis: iShares MSCI South Africa

    Learn more about the iShares MSCI South Africa fund, which is an NYSE-listed exchange-traded fund offered and managed by BlackRock.
  6. Mutual Funds & ETFs

    ETF Analysis: SPDR S&P 600 Small Cap Growth

    Learn more about the SPDR S&P 600 Small Cap Growth ETF, a highly efficient fund that tracks small-cap equities in the United States.
  7. Mutual Funds & ETFs

    ETF Analysis: WisdomTree International Hdgd Div Gr

    Review an analysis of the WisdomTree International Hedged Dividend Growth Fund ETF, which offers investors broad international exposure.
  8. Mutual Funds & ETFs

    ETF Analysis: ProShares UltraShort Yen

    Learn about the ProShares UltraShort Yen, an inverse-leveraged exchange-traded fund based on the value of Japanese yen in U.S. dollars.
  9. Mutual Funds & ETFs

    ETF Analysis: Market Vectors Semiconductor

    Discover how the Market Vectors Semiconductor ETF chooses its securities, and learn the types of investors for whom this fund is most appropriate.
  10. Mutual Funds & ETFs

    ETF Analysis: WisdomTree SmallCap Earnings

    Discover the WisdomTree Small Cap Earnings ETF, a fund with a special focus on small-cap and micro-cap stocks with positive earnings.
RELATED TERMS
  1. Exchange-Traded Fund (ETF)

    A security that tracks an index, a commodity or a basket of assets ...
  2. Exchange-Traded Mutual Funds (ETMF)

    Investopedia explains the definition of exchange-traded mutual ...
  3. Hard-To-Sell Asset

    An asset that is extremely difficult to dispose of either due ...
  4. Sucker Yield

    When an investor has essentially risked all of his capital for ...
  5. Benchmark Crude Oil

    Benchmark crude oil is crude oil that serves as a pricing reference, ...
  6. Lion economies

    A nickname given to Africa's growing economies.
RELATED FAQS
  1. What is the difference between called-up share capital and paid-up share capital?

    The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
  2. Why would a corporation issue convertible bonds?

    A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>
  3. What does a high turnover ratio signify for an investment fund?

    If an investment fund has a high turnover ratio, it indicates it replaces most or all of its holdings over a one-year period. ... Read Full Answer >>
  4. Does index trading increase market vulnerability?

    The rise of index trading may increase the overall vulnerability of the stock market due to increased correlations between ... Read Full Answer >>
  5. How does additional paid in capital affect retained earnings?

    Both additional paid-in capital and retained earnings are entries under the shareholders' equity section of a company's balance ... Read Full Answer >>
  6. What types of capital are not considered share capital?

    The money a business uses to fund operations or growth is called capital, and there are a number of capital sources available. ... Read Full Answer >>

You May Also Like

COMPANIES IN THIS ARTICLE
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!