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Citi On Presidential Election/COP

COLOMBIA
  • Citi EM Strategy has a negative market bias regardless of the polls/election results and maintains long USDCOP call, partly financed via short USDBRL call and UW duration in bond portfolio.
  • Citi economists think voter turnout at the presidential primaries was especially telling, with Gutiérrez’s turnout stronger than expected and Petro’s turnout not strong enough for him to be considered a clear winner in the first round.
  • Otherwise, note that Congress remains divided, with Historic Pact for Colombia holding ~15% of seats in each chamber, limiting the likelihood for drastic policy measures to be enacted if Petro wins the presidency.
  • Citi Economics expects a runoff between Gutierrez and Petro. The latest poll from the National Consulting Center (March 28-31), as reported by the Semana magazine, supports this. Additionally, polls suggesting statistical ties in a runoff scenario underscore the increased tightness in the race.
  • Ahead, markets will follow polls closely to see how the gap between Petro and Gutierrez evolves. While Petro is expected to win, Citi economists think Gutierrez has more room to grow in the polls, and they caution that Petro’s vice presidential selection (Francia Márquez) further isolates his party from forming an alliance with the dominant party in Congress (Liberal Party), which may deliver a blow to his eventual selection.
  • The outlook for local markets remains negative. Citi EM Strategy points out that the election is reaching its most crucial phase and the first polls following the primaries show a tight fight which should trigger the usual election trade, where locals buy USD. Given that Petro is starting to look like the favourite, this does not seem to be fully priced in yet.
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