2013 was a mixed year for Frontier and Emerging Markets. While African markets and places like Pakistan did incredibly well, other areas like Eastern Europe, Central Asia, and Latin America floundered. This brings us to a market that seems to have befuddled most people; Peru.
In the tradition of Peter Cundill, we feel there is a benefit to take a closer look at which markets lost the most in the previous year, as a means of finding opportunities for the current year. Peru’s equity market lost -29.9% last year. The economy is estimated to have grown 5.1% in 2013, and expectations are for approximately 6% in 2014. Sure, the economy experienced its first trade deficit, but the economy remained strong despite slumping gold and copper prices. Articles such as this, soured foreigners perspective on Peru, however the country has continued to remain stable, open to investors, and an appealing place, overall to invest.
Peru’s inflation rate is stable at 2%, and is forecasted to remain that way. The central bank has shown excellent discipline targeting inflation, and has maintained both its independence and resolve against pressure to cut rates steeply. At a 4% benchmark rate, the central bank maintains significant flexibility in how to approach the economy, moving forward.
Peru, as a result of its experience under the Fujimori government and its experience with the Shining Path, has much of the same resolve that Chile had (due to its experience with Pinochet), to avoid civil unrest to the extent that it is possible. Peru’s outlook remains strong, and its natural resources have a long way to go before they are being fully utilized. Companies initially remained fearful of Humala, but 2 years in, he has proven himself to be a moderate unlike Latin American leftists such as Chavez and Morales.
Copper did not fall as sharply as many feared, and Gold has stabilized at its current levels. Natural resource investment does not appear to be slowing in Peru. Peru expects a record $14 billion in investment in 2014, and the pipeline looks just as good. With a GDP of $220bn and a GDP per capita (nominal) of $7,000, the country is comfortably in the middle-income range along with countries such as Thailand, Iran, South Africa, and Bulgaria. Countries that have solved basic issues such as infant mortality and literacy, and are now more focused on poverty reduction, crime prevention, and higher education.
Peru, has a lot going for it, and 2014 should be a banner year for the economy. Given the steep fall in the equity market in 2013, investing in Peru really is a no-brainer. Particularly, if you are in it for the long-term.
The real challenge we find with Peru, is that it is exceptionally difficult to find quality financial and qualitative information on companies and the economy that are not in Spanish. So, if you speak Spanish, the case for Peru is even easier. If you don’t you will have to rely heavily on Google Translate. Even the main exchange’s website is not available in English. The BVL (Bolsa de Valroes de Lima) is well established with fully electronic trading. There is even a venture exchange that is aimed towards facilitating junior mining companies (BVL Jr.). Corporate governance in Peru is of a high standard relative to other frontier markets.
We hope this teaser has got you interested in Peru. Over the next few weeks we will have a piece that goes into how to invest in Peru, and what the most attractive opportunities are.