Strategy Note /

Peru's popular President dismissed by its unpopular Congress

  • Impeachment of President Vizcarra is a continuation of Peru's broken politics post-dating the 2015 Odebrecht scandal

  • Congress represents the vested interests most at threat from the popular anti-corruption efforts of outgoing President

  • Copper, US dollar and Covid-19 matter as much as politics (or potential protests) until, at least, April 2021 election

Peru's popular President dismissed by its unpopular Congress
Hasnain Malik
Hasnain Malik

Strategy & Head of Equity Research

Tellimer Research
10 November 2020
Published by

In Peru, the impeachment of President Vizcarra by Congress does not plunge the country into a political crisis. It has been in a political crisis since soon after the Odebrecht corruption scandal first broke in 2015.

Vizcarra was popular for his efforts to pursue anti-corruption reform. Congress is unpopular because it represents one section of the vested interests with most to lose from anti-corruption reform. But Vizcarra has paid the price for having no party to call his own in Congress.

The political crisis has already diminished Peru's ability to conduct re-construction after damage from floods in 2017 and to deal with the Covid-19 crisis in 2020. There is unlikely to be any resolution of this crisis until, at least, the April 2021 general election and, even then, the likelihood of further fragmentation of the established political parties may result in a very weak political mandate.

Paralysis in politics is a major hindrance, but it is not a new theme and the investment case should be driven as much by copper prices (gradually recovering, up 50% since March 2020 trough), copper output (picking up from the Q2 20 collapse as disruption from industrial action and Covid-19 wanes, monthly output up 60% in August versus the April 2020 trough) and the US dollar (weakening, off 10% from March 2020 peak).

We prefer Chile over Peru; its investment case is dependent on similar factors (copper, US dollar and troubled politics) but it is significantly cheaper: MSCI Chile is on a 25% discount to five-year median trailing price/book, whereas MSCI Peru is on a 10% discount, and Chile is on 22x forward price/earnings, whereas Peru is on 54x.

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