Living in Peru : your everyday companion

by
Maarten Warnaars

Monday July 13, the Peruvian Minister of Economy and Finance, Luis Carranza rang the opening bell to the New York Stock Exchange (NYSE). This was the first time a Peruvian minister has done so and fortunately for him stocks rallied slightly, the DOW gaining 27 points, at closing bell.

This was a momentous event for Peru for three main reasons. First, it was an opportunity to present the first Peruvian ETF listed in the U.S (iShares MSCI All Peru Capped Index Fund). The fund is a basket of the top 25 shares representing the Lima Stock Exchange (BVL) by free-float adjusted market cap, including securities of companies based and with their operations mainly in Peru, such as Credicorp. In addition, this will allow foreign investors easy access to invest in Peru by bringing one of the profitable stock exchanges to the international market. More importantly for local investors this will allow the BVL to have more liquidity. At the moment, in Latin America, only Brazil, Mexico and Chile have ETFs, so it is a very good sign that Peru has joined the club. Second, it helped to offset the negative news Peru has been receiving lately since to the Bagua incident. The Bagua incident has reminded the world that Peru is still a developing country that has far to go in relation to social issues and conflicts. So it is appeasing to know that some good events are still occurring in relation to Peru. The third, Carranza appearance at the NYSE helps to draw attention to Peru as a growing and stable economy. It is estimated that the Peruvian economy will continue its trend in being the fast growing economy in the region, in all the Americas in fact, with GDP growth in 2008 at 10% and estimated to reach around 4% this year. This is an astounding figure considering the current economical crisis and not to mention that it appears that inflation may remain in the Central Banks 2-3% range. However, the economy may be strong, with some signs of weakness, especially considering the delay affect the Peruvian economy has to the rest of the world, but the main concern is the political and social environment. Peru may continue its growth potential, attract more investors, continue the development of its underdeveloped capital market, and more, but this all could go up in flames if the current government does not know how to deal with social issues. At the end of the day, Luis Carranza ringing the opening bell at NYSE and the introduction of the Peruvian ETF was a positive note and hopefully a boost to the economy; let us hope this continues so we can all buy the Peruvian ETF.