Peruvian Stocks Weather Political Standoff

| About: iShares MSCI (EPU)

By Tim Seymour

Going into next month’s runoff election, the Peruvian electorate looks deadlocked, but the country’s stock market is surging nonetheless.

As reflected by the Peruvian ETF (NYSEARCA:EPU), the Lima market has rallied 10% since Wednesday morning.

This is despite news that the two main candidates for the presidency — Ollanta Humala and Keiko Fujimori — are still effectively tied at 40% to 41% of the vote apiece. The market prefers Fujimori, even though his rival Humala has backtracked quite a bit from his previous Venezuela-leaning leftist rhetoric to focus more on a “Brazilian” form of business-friendly social reform.

In fact, part of the reason the market is rallying is that Fujimori was significantly behind Humala until a few weeks ago, when the polls started to reflect a virtual dead heat. Despite steering a bit farther from Hugo Chavez up in Venezuela, Humala would still like to nationalize Peru’s natural gas reserves and raise mining taxes. On the other hand, he would also institute a form of Social Security for retirees.

Apparently 18% of the population remains undecided.

As far as EPU goes, it is important to stay in this trade as a long. The elections will be a key driver and have been a major overhang holding this market back.