Colombian markets plunge after victory of leftist Petro


The currency and the Colombian Stock Exchange were strongly devalued in the first hour of operations on Tuesday, as reaction to the triumph of leftist Gustavo Petro in the presidential elections over the weekend that accentuated investor fears about some of his proposals.

In a volatile start, the COP=STFX peso depreciated 2.74% to 4,012 units per dollar compared to Friday’s close, from 3,904.99 units per dollar.

Colombian markets were closed on Monday for a national religious holiday.

Earlier, the currency plummeted to 5% to 4,100 units per dollar, its biggest intraday percentage drop since September 2008.

The agents remained attentive to the appointments made by Petro in his team of ministers.

The president-elect has presented the names of some economists considered moderate, including former ministers and a former central banker, as possible candidates for finance minister.

“Recent comments from the president-elect pointed to moderate and orthodox macro policy options for the key post of finance minister. Still, if such a scenario were to materialize, we would not expect it to dispel uncertainties about the management of public finances and Colombia’s external balance,” Morgan Stanley said in a note on Tuesday.

Petro, a former guerrilla, former mayor and current senator, became the first leftist to win the presidency of Colombia on Sunday, with ambitious social proposals to combat poverty, inequality and exclusion, some of which arouse fears among investors and entrepreneurs.

On the stock market, the MSCI COLCAP .COLCAP stock index fell 5.25% to 1,377.69 points and the Colombian stock exchange fund ICOL.N fell 8.1%.

The largest fall was exhibited by the action of the oil company Ecopetrol ECO.CN, which lost 11.2% to 2,450 pesos in the local market, amid uncertainty over some of Petro’s proposals, such as suspending the signing of new hydrocarbon exploration contracts, prohibit fracking and its discourse against the extractive industry.

“In the short term, we expect the (Petro) administration to seek to broaden its coalition and not foresee disruptive policy proposals; when it comes to risks, the oil sector and the pension system are likely to be subject to more uncertaintyMorgan Stanley added.

Other losses occurred in the shares of the subsidiary of Ecopetrol, ISA ISA.CN with 5.53% at 20,510 pesos and in the preferred share of Bancolombia BIC_p.CN with 6% at 34,300 pesos.

Spreads of Colombian government debt vs. US Treasury bonds rose as much as 411 basis points as measured by JPMorgan’s EMBIG-D index, the highest since when it touched 419 basis points on June 14 and up from a close of 383 basis points on Friday.

“Uncertainty on the economic front is the key challenge that is likely to Petro will face in the coming days. Investors are likely to have to deal with high oil prices and their policies,” Citi opined.

Meanwhile, the prices of dollar-denominated bonds fell from 0.36 cents per dollar due in 2023 USP3772NHK11= to about 3.5 cents per bond due in 2033 CO016187933=.

Bonds due 2051 195325DT9= and 2061 195325DX0= fell 1 cent and 1.9 cents, respectively. The bonds have a yield of between 4.2% and 7.9% on all maturities.

In the local market, TES domestic debt securities maturing in March 2031 were devalued at a yield of 11.74%, from Friday’s close of 11.29%.

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