Even for a nation well-accustomed to periodic bouts of political chaos and economic disruption, Peru's recent eruption into a hotbed of uncertainty for investors is noteworthy for its scale and complexity.
In a crucial run-off election between two similarly controversial presidential candidates over the weekend, the more left-leaning Ollanta Humala has eked a narrow victory. Peruvian markets stood in nervous vigil in the weeks leading up to the election, and trading on the Lima stock exchange was suspended Monday morning following a swift 8.7% fall. The iShares MSCI All Peru Capped Index Fund
But many observers may be jumping to premature conclusions about the likely implications of a Humala presidency in Peru, and therefore overlooking the candidate's revised populist platform, which is noticeably more centrist than the admittedly nationalistic rhetoric that characterized his previous election bid in 2006. After all, he is not explicitly proposing to nationalize mines, as some of his critics fear he may; instead, he's advocated a windfall mining tax on the profits of mining operations in Peru, a position his opponent also supported.
Speaking of Humala's opponent, I am personally unconvinced that Keiko Fujimori represented a superior choice for the country. She is the daughter of former president Alberto Fujimori, who is now serving a 25-year jail sentence stemming from grave human rights violations, embezzlement, bribery, and other charges. I lived in neighboring Ecuador during the elder Fujimori's administration, and I think a clean break from that past works in Peru's best interest.
But in the wake of Humala's victory, the markets have already cast their vote of no confidence in the impending Humala administration. Major miner Southern Copper
A bark that's often worse than its bite
To keep all this in proper context, I remind Fools that not so long ago, investors with exposure to mining operations in Australia were fleeing in panic as proposals for a 40% windfall profit tax were tabled down under. Major miners BHP Billiton
More recently, Bolivian president Evo Morales spooked investors in Pan American Silver
I do not mean to suggest that murmurs of nationalization or excessively onerous mining windfall taxes do not collectively pose a threat to investors with exposure to the sector. To the contrary, I view the careful selection of mining jurisdictions where such actions are less likely as a crucial means of reducing risk within an investor's resource-sector allocation. Venezuela, for example, boasts some alluring mineral treasures, but I personally will not touch them after being burned years ago by leader Hugo Chavez's nationalization of the Las Cristinas gold mine. I continue to attempt to concentrate my mining-industry exposures within ultra-safe jurisdictions like Canada, but that doesn't mean I'll be joining the mob in this abrupt exodus from Peru.