Colombian markets fall after leftist presidential election

Colombian assets fell on Tuesday as markets reopened after leftist Gustavo Petro won Sunday’s presidential election on a platform to wean the country from its reliance on commodities and tax the wealthy.

The peso fell as much as 5 percent against the dollar, prompting losses among the world’s major currencies, and stocks fell 5.4 percent.

Dollar-denominated government bonds were among the laggards in emerging markets, while yields on local debt maturing in 2024 rose to a record high.

Shares of state-owned oil company Ecopetrol also took a hit, with shares falling more than 10 percent and benchmark dollar bonds falling to all-time lows.

Investors are dumping Colombian assets amid fears Mr Petro will change the country’s business-friendly model. The former guerrilla has promised to stop awarding new oil exploration contracts, completely overhaul the country’s pension system and raise taxes on the rich and big landowners.

“Investor concerns are valid and we expect Colombian markets to remain under pressure over the coming months,” said Olga Yangol, head of emerging markets research and strategy at Credit Agricole CIB. “Colombia’s fiscal and external vulnerabilities make the country particularly vulnerable to changes in investor sentiment.”

Some of Petro’s plans will be relatively easy to implement, such as sacking the management of Colombia’s state oil company. Other proposals, such as taxing wealthy landowners and declaring an economic emergency, are being restricted by powerful institutions such as Congress and the Constitutional Court.

Mr. Petro does not have a majority in Congress.

His election as finance minister will be key to allaying investor concerns. Former centrist coalition presidential candidate Alejandro Gaviria has emerged as a favorite for the markets, while other candidates include Jorge Garay, Rudolf Hommes, Jorge Ivan Gonzalez, Cecilia Lopez, Ricardo Bonilla and Luis Fernando Medina.

Someone close to Mr. Petro’s circle of advisors could trigger further market losses, according to Andres Pardo, chief Latin America macro strategist at XP Investments.

“It’s likely that some of the overshoot will reverse if Petro calms markets and appoints a pro-market finance minister,” said Mario Castro, strategist at BBVA.

“In any case, given the possibility of implementing proposals such as phasing out oil exploration, COP will continue to maintain a premium going forward, which could have a negative impact on the external sector of the economy.” Colombian markets fall after leftist presidential election

Fry Electronics Team

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