Political risk haunts Latin American investors as Peru election nears

Peru's election race between two polarized candidates, which is being closely watched, is the latest in a series of political risk events haunting investors in Latin America, a region struggling to keep up with its global counterparts despite a boom in commodities. Latin America was engulfed in social unrest before the COVID-19 pandemic. Now a series of elections continuing in 2022, protests in Colombia and the upheaval over Chile's constitution, supporting investors for a new wave of policy uncertainty.

Moreover, the coronavirus is still devastating the region, with Argentina, Colombia, Brazil and Chile taking up far more confirmed cases per million people than India.

"The market, and investors in general, are very nervous about Latin America," said Ricardo Adrogue, head of the global debt and currency group at Barings.

"Latin America is at a very difficult time. It is holding elections at a time when (COVID-19) is so painful, deadly and widespread in so many countries in the region, which is a possible change in economic and economic policy direction. "

The economy of Latin America shrank by 7% last year, according to the International Monetary Fund, the sharpest contraction of all emerging regions.

Rising global inflationary pressures and yields hit the region disproportionately with hard currency and local bonds which lagged behind in 2021 and underperformed many of its currencies.

Rising commodity prices could not provide much relief in an area dominated by resource exporters. The growth forecast of 4.7% this year depends on the recovery being on track despite the slow progress with vaccination.

"Increased political volatility has made the positive things about the impact on commodity prices on the region very strong," Angus Bell told Goldman Sachs Asset Management.

"Obviously there is news flow in Peru, there are things going on in Chile, we are also entering an election cycle in Brazil where the former president is in the picture again."