Colombian peso, market down on leftist Gustavo Petro’s presidential win

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Traders work on the floor of the Colombian Stock Exchange, in Bogota

By Nelson Bocanegra

BOGOTA -Colombia’s peso currency, its stock index and shares in state-run oil company Ecopetrol fell on Tuesday after leftist Gustavo Petro was elected president in a Sunday vote.

Petro has promised to tackle deep inequality with pension redistributions, free university education and other social programs.

The election of the former M-19 guerrilla marks a radical change for a country still scarred by decades of conflict. Nearly half of Colombians live in poverty, and many voters are frustrated with the right-leaning political establishment. Analysts have predicted volatile markets in the short-term as investors await ministerial appointments.

Petro has floated a variety of moderates – including former ministers and ex-central bankers – as possible candidates to head his finance ministry.

Even an orthodox pick would not “dispel uncertainties around the management of public finances and Colombia’s external balance sheet,” Morgan Stanley said in a note.

In its first minutes of trading on Tuesday, the peso tumbled nearly 5%, its largest intra-day fall since late 2008. It bounce off session lows and closed down 3% from Friday at 4,022.50 pesos per dollar.

The MSCI COLCAP index fell more than 5% during the session and closed down 3.82% at 1,398.42.

Ecopetrol shares were down 11.92% to 2,431 pesos per share.

Petro’s proposals have startled some investors, especially a ban on new oil projects for environmental reasons, though he has promised to respect current contracts.

“In the near term, we expect the administration to look to broaden its coalition and do not foresee disruptive policy proposals; when it comes to risks, the oil sector and the pension system are likely to be subject to more uncertainty,” Morgan Stanley added.

Colombian government debt spreads to U.S. Treasuries rose as much as to 411 basis points as measured by JPMorgan’s EMBIG-D index, the highest since touching 419 bps on June 14, from a close of 383 bps on Friday. The 50-day moving average spread stands at just under 370 bps.

Dollar-denominated bond prices fell from 0.36 cents on the dollar on a 2023 maturity to near 3.5 cents on a 2033 bond. The 2051 and 2061 maturities fell 1 cent and 1.9 cents respectively. Bonds are yielding between 4.2% to 7.9% across maturities.

Local TES bonds coming due in March 2031 had a yield of 11.97%, from 11.29% at the close of trading on Friday.

Monday was a holiday in Colombia.

Petro, who has criticized the U.S.-led war on drugs and promised to shift Colombia’s relationship with Washington to focus on climate change, tweeted on Tuesday he had had a “very friendly” telephone call with U.S. President Joe Biden.

(Reporting by Nelson Bocanegra, additional reporting by Rodrigo Campos in New YorkWriting by Julia Symmes Cobb, Editing by Angus MacSwan and David Gregorio)

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