Peru Ousts President for the Second Time in Less Than Six Months

Peru’s Congress voted 75-24, with three abstentions, to impeach interim President José Jerí after videos showed undisclosed visits to businesses owned by a Chinese businessman and prompted an attorney-general corruption inquiry; Jerí denied criminal wrongdoing but acknowledged not reporting the meetings. The ouster — the second congressional removal in six months and the sixth presidential exit before term-end in a decade — leaves the legislature to pick a replacement after acting congressional head Fernando Rospigliosi declined the presidency; a general election is set for April 12 with power transferring on July 28. The episode underscores acute political instability that could heighten sovereign and country-risk premia, weigh on investor sentiment toward Peruvian assets and complicate policy continuity ahead of the election.

Analysis

Market structure: Political volatility in Peru directly pressures Peru-exposed assets — sovereign debt, the sol (PEN), local banks and Peru-heavy miners (Southern Copper/SCCO, Credicorp/BAP, EPU ETF). Expect higher sovereign risk premia (5y CDS +50–150bps potential) and a near-term capital flight into USD; domestic credit intermediation and capex in mining could be delayed 1–3 quarters, reducing near-term investment demand for local contractors and services.

Risk assessment: Tail risks include a snap governance vacuum that delays the April 12 election or provokes mass unrest, causing a >10% FX shock and 100–200bps sovereign spread wideners; a milder path is continued turnover with stress concentrated in 1–3 months. Hidden dependencies: mining royalty negotiations, Chinese state-linked concession holders, and pre-existing corruption probes can trigger regulatory actions that selectively hit companies with China-linked counterparties.

Trade implications: Near term (days–weeks) favor USD/PEN appreciation trades and buying Peru CDS or short EPU exposure; shorting BAP and SCCO vs long global diversified miners (FCX, BHP) is a relative-value trade for 1–3 month horizon. Options: buy 3-month put spreads on EPU or BAP to cap premium spend if realized volatility spikes >40%.

Contrarian angles: Consensus prices in systemic collapse; history (Peru mid-term political churn) shows eventual recovery in 6–12 months as elections restore stability and commodity prices reassert fundamentals. If CDS widens >75bps but copper holds, selective longs in Peruvian mining names with strong balance sheets (pair versus SCCO) could offer >2x asymmetric payoff into H2 (3–9 months).

Key Decisions for Investors

• Establish a 2–3% portfolio short position in Peru equity exposure via EPU ETF (or local ADRs BAP/SCCO) using a 3-month put spread (buy 3M 10% OTM put, sell 3M 20% OTM put) to limit cost while targeting a >10% downside move.
• Buy 5-year Peru sovereign CDS protection equivalent to 1–2% NAV (or short Peru USD sovereign bonds via swaps) if CDS spreads widen >50bps from today; scale to full size at >75bps widening, target a 6–12 month horizon.
• Implement a pair trade: short SCCO (Peru-heavy miner) 1.5% NAV and go long FCX (Freeport-McMoRan) or BHP 1.5% NAV to isolate Peru political risk while keeping copper price exposure—hold 3–9 months and rebalance if SCCO underperforms by >10%.
• Go long USD/PEN forward or spot for a 1–3% notional position; add size if PEN depreciates >3% in a single week. Close or trim once PEN retraces to within 1% of pre-crisis level or after election on Apr 12 if outcome lowers uncertainty.
• Reduce direct Peruvian bank exposure (Credicorp/BAP) by 30–50% of current positions; redeploy proceeds into regional banks with lower Peru revenue share (BBVA/BNP Latin America exposures) and reassess after 90 days or once regulatory inquiries resolve.