Peso softens in Colombia as a right-wing lawyer is set to become the next president

Colombian stocks rose sharply on Monday, after the right-wing lawyer Abelardo De La Espriella narrowly won the Sunday presidential election. However, both the peso and international bonds were softening in early trading.

De La Espriella was a political outsider who led leftist Senator Ivan Cepeda, by less than 1 percent, after running a campaign on promises to shrink the state's size, increase the tax base, reduce corporate taxes, and restart oil exploration. De La Espriella received 49.66%, while Cepeda was behind by about 250,000 votes, with 48.7%. This is according to the initial results from the national register.

U.S. listed shares of Colombian companies rose sharply in the pre-market, with Grupo Aval, a financial conglomerate, up around 10%. State-run oil company Ecopetrol as well as financial firms Grupo Cibest & Geopark also gained around 7%.

The peso weakened by 0.2%, to 3450.956, but it is still not far from the 3412.43 it reached last week, which was the highest level in over five years. Colombia's bonds have also weakened, with the longer-dated maturity down 0.3 cents on the dollar.

JPMorgan wrote in a client note that "a one-point victory is still a success, but one so thin changes both the mandate and the politics of delivery on multiple fronts."

De La Espriella may be less able to form and maintain a coalition in Congress, increasing the likelihood that he will quickly pivot to measures he is able to push through on his own such as energy contracts or security while the fiscal plan stalls.

JPMorgan said that "Governability rather than policy direction is the major source of uncertainty moving forward."

Investors increased their bets on the possibility that Colombia would move away from the policies pursued by outgoing president Gustavo Petro (a Cepeda-allied politician).

Stocks in Colombia are expected to rise on the hope that a De La Espriella administration will boost business confidence, encourage investment at home and revitalize energy sector activity.

His agenda includes reopening?oil exploring and allowing for fracking. He also wants to take a harder line against criminals and guerrillas.

Armando Armenta is a sovereign research analyst at AllianceBernstein for emerging market debt. He said that the results were closer than expected after the unprecedented support Cepeda received by Petro's government.

He added that recent gains in 'asset prices will consolidate with the announcements of the 'new administration.

Analysts warned that the markets had already priced in the possibility of a De La Espriella victory, and further gains were unlikely unless investors saw progress on fiscal policies and investments.

(source: Reuters)