Peru’s stock market sank more than 12.5 percent, its biggest loss ever, hitting lows not seen since 1982 before trading was suspended until Tuesday. The sol, Peru’s currency, fell 1.24 percent, prompting the central bank to offer to sell about $215 million in deposit certificates to calm the currency’s fall. The markets had moved on concerns that Humala, a former army commander led an unsuccessful revolt against the previous Peruvian President Albert Fujimori in 2000, would increase mining tax rates and ban natural gas exports.
The risk remains as zinc is a major component of Peru’s mining capacity, with production output at more than 1.5 million tonnes in 2009, second in the world behind China. Zinc was down $9 to around $2,283/ton Thursday, but actually traded higher following the news of Humala’s election, likely in response to the efforts to calm the markets following his election.
Despite the real concerns of some in the investment community, Peru offers some tantalizing prospects, with more than $40 billion in mining projects lined up for the next decade. Overall, the political risk remains lower in Peru due to lower concerns of revenue and expenditure transparency. However, the vicissitudes of politics can often prove more challenging for international investors to manage than the graft and corruption which persist in other resource-dependent economies.
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