Peru’s markets tank after Humala win

At IBD,

Markets plummeted in Peru on Monday after leftist Ollanta Humala won Peru’s presidency with nearly 51% of the vote. Stocks on the Lima exchange fell 13% at last glance, their biggest one-day drop since records began in 1990. Bonds and the currency were down, too.

The stock market had to close earlier than scheduled.

Why the drop?

Early in his campaign, Humala vowed to expropriate businesses, confiscate private pensions and shut off free trade, tapping into a deep vein of resentment among Peru’s lower classes.

He backtracked from most of those threats as it turned off most voters, but kept his promise to redistribute wealth by targeting Peru’s big mining companies.

So even though he vowed not to expropriate businesses or pensions, the economy-killing taxes he wants on mining companies will amount to the same thing.

It’s a potential killer of Peru’s silver-and-copper goose, which has driven Peru’s economic growth and will have terrible effects now, across the board.

The irony is that as Humala claims he’s going to make Peru like Brazil, he forgets that Peru’s economy actually has outperformed Brazil’s. His promise, which sounds so attractive, amounts to replacing Peru’s star economy with Brazil’s inferior state-directed economy.

Yesterday’s drop was the worst in the stock market’s history (link in Spanish).

The markets are not hopeful for the country.

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