The Colombian assets soared after construction tycoon Rodolfo Hernández defied the polls and secured a seat in the second round of elections, reducing the chances that left-wing senator Gustavo Petro will be the next president.
(Read: Dollar in Colombia opens with a sharp drop after elections).
The peso was up almost 5% on Tuesday, after markets were closed on Monday for a holiday. The yield of bonds in pesos maturing in 2032 fell 75 basis points, to 10.35%while dollar bonds advanced.
The cost of protecting Colombian debt against a default for five years decreased, while shares rose 3.8% at the open. Petro has surprised investors with its proposals to reform the private pension system, raise taxes and phase out oil and coal production, which are the country’s main exports.
While Hernández, a 77-year-old former mayor of a midsize city, is unknown to many, he is seen as a safer bet for business interests than Petro. “Pthe considerations of ‘anyone but Petro’ will prevailsaid Edwin Gutierrez, head of emerging market sovereign debt at Aberdeen Asset Management PLC. “Hernandez has a better chance of beating him in the second round.”
Petro obtained 40% of the votes in the first round, compared to 28% for Hernández. But many of the other candidates who did not make it to the ballot support the businessman in a kind of anti-Petro alliance that could limit the capacity of Petro to boost their support ahead of the June 19 election.
Hernández, who has been compared to Donald Trump and Jair Bolsonaro for his off-the-cuff and sometimes foul-mouthed comments, has not revealed who will lead his economic team. He has promised to take action against corruption and waste, as long as he has said that Colombia must pay its debts.
want to reduce the value added tax from 19% to 10%. Another aspect that reassures investors is the fact that neither of the two candidates will have a majority in Congress, so there will be checks and balances on any radical proposal.
The state-owned Ecopetrol SA, which could be affected by Petro de phase out oil exploration, rose 9% at the open, while its US certificates of deposit soared nearly 14%. “Looking at the breakdown of the votes and assuming that a large part of the voters are driven by ideology, Hernandez certainly has a much easier path,” said Alvaro Vivanco, head of emerging markets and ESG strategy at Natwest Markets in Stamford. Connecticut.
Still, he said, Petro cannot be completely ruled out in a runoff. The peso, which was trading at 3,800 per dollar on Tuesday, could go to 3,700Vivanco said. Until now, Colombia has been governed mostly by administrations concerned with credit ratings, fiscal deficits and investor confidence.
(Keep reading: Specify economic proposals, the key for the second round).
The country lost its investment grade status in 2021 after a failed tax reform. “Very positive results,” said Daniel Rico, currency strategist at RBC Capital Markets in New York. “The market will discount a Hernandez victory in two weeks with more than 90% probability.”
BLOOMBERG
