Wearing a huge cowboy hat and carrying a giant yellow pencil — the symbol of his political party — Pedro Castillo has cut a folksy, colourful figure as he travels the length of Peru campaigning for the presidency.

But among the business elite in Lima and in the boardrooms of the mining companies that generate much of Peru’s wealth, no one is amused.

Castillo, a 51-year-old school teacher and union leader, emerged from political obscurity to win the first round of the election last month on an unashamedly Marxist ticket.

His party, Peru Libre (Free Peru), wants nothing short of revolution in Latin America’s fifth most populous nation, aiming to overturn the free-market model that has governed the country for a generation.

In its manifesto, the party says foreign mining companies should be forced to pay 80 per cent of their profits to the state rather than the “miserable” 10, 20 or 30 per cent they pay now.

“If the companies do not accept the new conditions . . . the state must proceed to nationalisation,” Peru Libre warns.

The party’s founder, Vladimir Cerrón, names Venezuela’s Hugo Chávez and Nicolás Maduro, Nicaragua’s Daniel Ortega and Fidel and Raúl Castro in Cuba among a select “group of presidents who gave the continent dignity”.

“The programme is a return to the 1970s,” said Roxana Barrantes, economics professor at the Pontifical Catholic University in Lima. “You read it and you think ‘my God, what’s this?!’”

Financial markets are unsurprisingly rattled — not only by Castillo’s ample first-round victory but by subsequent polls that suggest he enjoys a commanding lead over his rival in next month’s run-off vote, Keiko Fujimori, the daughter of the country’s former authoritarian president Alberto Fujimori.

In the two weeks following the first vote on April 11, Peru’s currency, the sol, dropped more than 4 per cent and hit a historic low of 3.85 to the dollar, while the stock exchange shed over 12 per cent. The spread between 10-year sovereign bonds and US Treasuries widened by over 71 basis points and the cost of insuring against default shot up, with five-year credit default swaps hitting their highest level this year after the first round.

One recent business survey found three-quarters of Peruvian companies have put their investment plans on hold until after the June 6 election.

“We don’t yet have information on capital flight but all the anecdotal evidence suggests people are looking to get their money out,” said Alonso Segura, a former finance minister.

“I have friends who are wealth managers and they’re swamped with work, opening bank accounts for people in Panama and the US. It’s difficult to know how widespread and representative that is, but it’s certainly happening.”

It is not clear to what extent Castillo believes in Peru Libre’s radical manifesto, which also calls for a new constitution drawn up by a popular assembly and a re-evaluation of the country’s free trade agreements.

Perhaps wary of squandering his lead, he has given few interviews and baulked at the idea of presidential debates.

Knowing she has to go on the offensive, Fujimori travelled last weekend to the town of Chota, high in the northern Peruvian Andes, where Castillo has his electoral base. There, she challenged him to an impromptu debate on a hastily arranged stage in the town square.

True to his party’s manifesto, Castillo laid in to foreign multinationals which he said “have sacked the country”.

“Gold, silver, zinc have to be for the Peruvians,” he said. “It’s time to elect a man of the people. No more poor people in a rich country!”

For those worried about a Castillo presidency, there is solace in the mathematics of Peru’s fractured political landscape. In the next congress, Peru Libre will be the largest party with just 37 out of 130 seats.

Even with the support of other leftists it will struggle to muster the one-third of parliamentary votes Castillo would need to avoid impeachment, let alone the two-thirds he would need to change the constitution.

“Look at his proposals. They cannot be implemented unless you have absolute control of congress,” said Alfredo Thorne, a former finance minister. He said major mining companies would simply leave if Peru turned sharply leftward.

“With the copper price where it is, most mines across the world are profitable. You don’t need to be in Peru to mine copper.”

With a month to go, Fujimori still has a chance of victory, although she is trailing by about 10 percentage points and is loathed by many Peruvians, who associate her with her father’s divisive rule in the 1990s and her own obstructionism as a congresswoman in recent years.

More than two-thirds of the electorate voted for neither candidate in the first round. Some 10-18 per cent say they do not know who to back in the second, and up to a quarter say they will spoil their ballots.

“The problem with a Castillo versus Fujimori run-off is that so many voters find both candidates fundamentally objectionable,” the political consultancy Teneo said.