Colombia’s electoral risk would be different from that of Peru and Chile

Colombia’s peso could underperform Chile’s currency in coming weeks as uncertainty mounts ahead of May’s presidential election, according to NatWest Markets’ chief emerging markets strategist Álvaro Vivanco.

He continues to maintain long positions in Chilean pesos against the Colombian currency, as the risks for local assets in Colombia increase, given that the leftist presidential candidate, Gustavo Petrotops the polls.

The risks are different from those of the recent elections in chili Y Peruwhere leftist presidents have leaned to the center, as the prospect of losing trust has been seen as too high a cost for incoming leaders to accept, the analyst wrote in a note Friday.

Petro has proposed consistent policies to move the economy away from extractive industries and towards the development of a more competitive industrial and agricultural base, which implies a weaker peso, Vivanco said.

That message has not worked to the political benefit of Petroso it is unclear if he will moderate, the strategist added.

“In the longer term, we believe that the risk of a sharp turn in the economic model under Petro (even if it is not the base case to win the elections) justifies a defensive position in both the Colombian peso and the local curve.”.

Petro has also criticized the central bank for raising rates. “The political prescription is very clear: what is needed is lower interest rates, not higher ones, to weaken the currency, boost domestic production and exports.”, Vivanco wrote.

“Managing this without triggering a spike in inflation would be difficult.”, he concluded.