Peru has become “the Latin Lion”, says Jonathan Anderson of UBS. After a “miserably volatile performance in the 1980s and 1990s”, it has outgrown its major Latin American peers since 2000. And it has done it the “old-fashioned way – by saving and investing more”. The savings rate has risen strongly, allowing it to increase investment without worrying about ballooning external deficits. Peru has also been highly successful in capitalising on the global commodity and trade boom. That has moved the current account from a hefty deficit to balanced. Foreign direct investment inflows have been strong, while public and private debt levels remain low.
Overall, it’s an impressive picture, which explains why the stockmarket has risen by more than 800% in US dollar terms since 2003. But what about the outlook? UBS are upbeat – the only big risk is a swing to less market-friendly politicians in local and presidential elections. However, Capital Economics are more cautious on the near-term economic prospects. They see the country’s current “China-like growth rate” of 10.1% year-on-year in the first quarter as vulnerable to tighter monetary policy and any weakness in global commodity prices. Examine the sole Peru ETF, the iShares All Peru Capped Index Fund (US: EPU), and the risks to the market from that second factor become clear; over 60% of the fund is in mining and materials stocks.