Frontier Markets Capital Peru Country Profile
Upcoming SlideShare
Loading in...5
×
 

Frontier Markets Capital Peru Country Profile

on

  • 883 views

 

Statistics

Views

Total Views
883
Slideshare-icon Views on SlideShare
883
Embed Views
0

Actions

Likes
0
Downloads
8
Comments
0

0 Embeds 0

No embeds

Accessibility

Upload Details

Uploaded via as Adobe PDF

Usage Rights

© All Rights Reserved

Report content

Flagged as inappropriate Flag as inappropriate
Flag as inappropriate

Select your reason for flagging this presentation as inappropriate.

Cancel
  • Full Name Full Name Comment goes here.
    Are you sure you want to
    Your message goes here
    Processing…
Post Comment
Edit your comment

    Frontier Markets Capital Peru Country Profile Frontier Markets Capital Peru Country Profile Document Transcript

    • COUNTRY PROFILE - PERU -AN ATTRACTIVE FRONTIER MARKET
    • PERU -COUNTRY PROFILEThe story of a very small economy with a lot of room to grow • “The story of a very small economy with a lot of room to grow We’re a very small economy with a very high potential for growth in comparison to many countries in the region,” said Leoncio Altamirano, a trader at Lima-based Juan Magot y Asociados SAB. “The market has been spectacular.”• Today’s focus is on Peru. Since the end of • The country benefits from its massivethe 90’s and the military forces victory over exports in copper and silver, its re energizingthe Light Path, the country went through a long oil and gas sector and its growing consumerperiod of political troubles with the demise of market. With 29mln people and a 20 pointspresident Fujimori while undergoing a true wave decrease in poverty level from 44% to 24%of modernization and political structural changes of the population living under the poverty level,that liberalized the economy, tamed inflation and Peru’s middle class is expanding.helped raised the level of exported commoditiesmainly copper and silver. However, close to 60 percent of the rural population remained in poverty. Urbanization isAfter the Fujimori era, the new administration going up and driving a boom in construction withcontinued the wave of strict monetary policy, cement production rising 16 % this year. Theinvestment in infrastructure though limited urban population rose from a 34% in 1940and poverty fighting. to 74% in 2005.The result is an economy that grow for an Being the third largest country in South Americaeverage of 6% a year. The country weathered with the fifth biggest population. The countrythe financial crisis correctly even if GDP dropped must heavily invest in its infrastructure. Forto .9% in 2009 but rebounded to 6% in 2010 and example transportation costs account for 30% ofis projected to hit 9% next year. agriculture products compared to 6% in Chile.
    • • A Peru climbed from 110th to 97th position in theWorld Economic Forum’s infrastructure ranking.Despite some recognizable efforts in highwaysand airports,Peru invests only 1% of its GDP ininfrastructure. The consensus betweeneconomists is that a level of 4% is necessaryin a developing country to sustain its growth.Overall, the level of infrastructure is weak, even byLatin American standards, corruption, inefficientpublic services, unjustified and time consumingor too rapid procedures with too few planning arecrippling Peru’s infrastructure development. Source: Worldbank To sustain the sector Peru’s Ministry ofEconomy and Finance (MEF) has launched GDP (2009): $127.22 billion.the country’s first infrastructure fund,with total commitments of US$ 460mn. Annual growth rate: 9.8% (2008); 0.9% (2009);Peru’s economy has been steadily growing 6%(2010);for the past ten years 9%(2011 exp) Per capita GDP (2009): $4,365.
    • PERU -COUNTRY PROFILEThe story of a very small economy with a lot of roomto grow• The growth drivers of Peru • 1-A strict monetary policy that resulted in a controlled inflation the past ten years. 1 - Inflation has been tamed thanks toefficient monetary policies To many analysts surprise, the Peru’s central bank kept on tightening its economic policy by raising2 – Huge exports gains thanks to raising rates from 3% to 3.25%, yesterday. The decisioncommodity prices to cool the economy will make corporate loans more expansive and will restrain the banking3 – Growing manufacturing and construction sector ability to perform while cooling foreignsectors thanks to expanding consumer investment by making loans more expansive.market Even though inflation’s annual increase is well4 – High level of public and private within the target range set out by Peru’s CentralInvestment Reserve Bank (BCR), which aims to keep inflation within a band of one to three percent, the Central Bank decided to raise its rates. Note that Peru’s sovereign debt was rated investment grade in 2008 by Moody’s. Peruvians lived through hyperinflation in the mid-80s so they are very conservative in their monetary policy. Amid strong inflows of “hot money” that have pushed the Nuevo Sol to a two-year high of about 2.8 per dollar, the seven- member bank board had been holding rates at 3 per cent for the past three months.
    • 2-Peru is the world’s leading producer of A look at The Philadelphia Stock Exchange Goldsilver, and its second biggest copper producer. and Silver Index, a capitalization- weighted index which includes the leading companies Natural resources: Copper, gold, silver, zinc, lead, involved in the mining of gold and silver. Theiron ore, fish, petroleum, natural gas, and forestry. index was developed with a base value of 100 asPeru is the world’s top producer of silver, second of January1979.in zinc, third in copper and tin, fourth in lead,and sixth in gold. Look at the DJ copper Subindexperformance.According to consulting firm Maximixe Peru’smineral exports are expected to have reachedUS$ 24.2 billion in 2010, with earnings frommineral resources totaling over US$ 21 billion andthose from crude oil and its derivatives reachingUS$3 billion.
    • PERU -COUNTRY PROFILEThe story of a very small economy with a lot of roomto grow• The balance of trade is positive (2009 • 3- Manufacturing, construction, utilitiesGovernment of Peru customs statistics): production, private consumption, are leadingExports--$26.66 billion: growth thanks to a dynamic consumerImports--$20.4 billion: marketHere is a detailed look at Peru’s imports and The manufacturing sector grew 14.66% in 2010exports products and parthers and electricity and water production increased 8.22%. The construction market grew 16.5% in Exports--$26.66 billion: gold, copper, fishmeal, 2008, 6.1% in 2009, and 10.71% in 2010 and anpetroleum, zinc, textiles, apparel, asparagus, anticipated 10% in 2011.coffee, others. For example: Peru’s largest constructionMajor markets--U.S. (17%), China (15.3%), firm, gained 135 percent in 2010 to 6.65Switzerland (14.9%), Canada (8.7%), Japan soles. Cementos Pacasmayo SAA, the Hochschild(5.1%), Germany (3.9%), South Korea (2.8%), Group’s cement producer, advanced 135 percentChile (2.8%). to 7.51 soles in 2010, its biggest ever yearly advance.Imports--$20.4 billion: petroleum and petroleumproducts, vehicles, plastics, steel, telephones, Telecoms mobile revenue will grow by 6.6 % overwheat, soy oil and soy products, commercial the next five years, going from generating $2.2machinery, processed food. billion in 2010 to $3.1 billion by 2015, Major suppliers--U.S. (19.7%), China (15%), In a move to benefit from the market’s growthBrazil (7.7%), Ecuador (4.9%), Chile (4.6%), China Tel has announced that it will invest $62Colombia (4.4%), Japan (4.1%). Source: CIA- million to sell internet protocol telephony servicesfactbook in Peru through its subsidiary, Perusat
    • • 4- High level of investments are supporting the country’s growth The government of Peru has launched a vast plan of affordable housing construction to cope with the growing urbanization of the population. The government launched a “stimulus plan” in 2008. The country is compensating for deficiencies in housing, bridges and highways. Under the plan, the government has authorized the emission of sovereign bonds worth over 2.45 billion soles until January 31 of 2010 to finance projects of regional governments from the 2.6 billion approved in total. In 2008, Peru decided to spend $13.2bln in housing, highways and other projects.• The boom in manufacturing, constructionand exports of minerals and hydrocarbures For the first time in more than five years theis supported by a two factors. country was witnessing a trade deficit. Demand in the US and China had faltered and prices The first is a heavy investment plan by the for copper and other minerals were down fromgovernment, 11.5% compared to 2007. The government had to react to sustain its economy.the second is a huge inflow of foreigndirect investment. The plan was divided in three tiers. The first tier was an increase of $3.2bln in government spending, the second tier was finalizing another $3bln in previously signed loans and the third tier was to take another $7bln in loans.
    • PERU -COUNTRY PROFILEThe story of a very small economy with a lot of roomto grow• In public expenditure Transport represent(72.5%) followed by the water and sanitationsector with (16.7%).These two type of investments are known for theirability to generate a high effect on employmentin the short-term and act as poverty reducersduring crisis.According to Central Reserve Bank (BCR)President Julio Velarde Investment projectsplanned in Peru will total over 40.46 billion USdollars during the 2010-2012 period,. • Here is a look at Foreign Direct investment Inflows on the long term.Projects in hydrocarbons, minerals andinfrastructure will total an estimated US$ 12.7billion according to figures provided by privatecompanies. [i] Peru’s Central Bank estimatesthat the stock of foreign direct investment (FDI)was $37 billion at the end of 2009.We can clearly see that Peru is significantlylagging behind regional leaders, including notonly Chile, but also Brazil, Mexico and Colombiain terms of infrastructure investment needs andquality gaps.
    • • Peru main problems in the infrastructure • The risks of investing in Peruinvestment field are The country is still largely poor: per-capita gross domestic product (GDP) of $8,600 ata lack of visibility on legislation concerning purchasing power parity (PPP), well below Chile’scontractual conditions in the Public to $14,700 or Brazil’s $10,200Private Projects sector(PPP,), Political risk is high, the daughter of the a need for procedures simplification, imprisoned former president is running for thecontract standardization April 2011 presidential election. The current front runner has just been taken in a corruption scandal in which one of the member of his ticket allegedly paid him a quarter million dollar to run along his side. The US is also worried by a resurgence of the Lighting Path in the country side, this time as a more social entity, kindler and gentler, that opted for corruption instead of assassination. Corruption is rampant in the whole country from the public servants at local and national levels to military officials. Faud Khoury, Peru’s comptroller, estimates the state loses at least 6 billion soles ($2.15 billion) per year due to corruption, newspaper Los Andes reported.
    • PERU -COUNTRY PROFILEThe story of a very small economy with a lot of roomto grow• In public expenditure Transport represent(72.5%) followed by the water and sanitationsector with (16.7%).These two type of investments are known for theirability to generate a high effect on employmentin the short-term and act as poverty reducersduring crisis.According to Central Reserve Bank (BCR)President Julio Velarde Investment projectsplanned in Peru will total over 40.46 billion USdollars during the 2010-2012 period,. • Here is a look at Foreign Direct investment Inflows on the long term.Projects in hydrocarbons, minerals andinfrastructure will total an estimated US$ 12.7billion according to figures provided by privatecompanies. [i] Peru’s Central Bank estimatesthat the stock of foreign direct investment (FDI)was $37 billion at the end of 2009.We can clearly see that Peru is significantlylagging behind regional leaders, including notonly Chile, but also Brazil, Mexico and Colombiain terms of infrastructure investment needs andquality gaps.
    • • Stocks to look for in Peru • The third mining company to watch isSouthern Copper Corp. (SCCO, SCCO.VL) Volcan Compania Minera SA Volcan.Copper prices are going up tracted by the Compania Minera SA operates as a mininggrowing demand of emerging countries, India, company in Peru. It engages in the explorationChina mainly are the biggest copper consumers and exploitation of mining concessions; andthanks to their growing middle class. related extraction, concentration, treatment, and commercialization of polymetalic minerals.Technology, electricity consumption, telecom The company produces primarily zinc, gold, iron,infrastructure are major drivers of the demand lead, copper, and silver.for copper cables. Analysts predict that copperconsumption will grow 11.5% this year to 6.8 In the Banking sector the company to watchmillion tons. is Creditcorp. The stock performance is 47% for the year.A supply deficit is predicted for 2011. In themining sector, blue-chip copper company Credicorp Ltd. (Credicorp) is a financial servicesSouthern Copper Corp. (SCCO, SCCO.VL) rose holding company. The Company is engagedsome 42% last year, principally in banking, insurance (including commercial property, transportation and marineThe Company produces copper, molybdenum, hull, automobile, life, health and underwritingzinc and silver. All of its mining, smelting and insurance), pension funds (including privaterefining facilities are located in Peru and in pension fund management services), andMexico, and it conducts exploration activities in brokerage and other (including brokerage,those countries and Chile. trust, custody and securitization services, asset management, and trading and investment).• In the same category you can also look atCompania de Minas Buenaventura SA (NYSEADR: BVN), Compania de Minas BuenaventuraS.A.A. (Buenaventura) is a precious metalscompany engaged in the exploration, mining andprocessing of gold, silver and other metals inPeru.
    • PERU -COUNTRY PROFILEThe story of a very small economy with a lot of roomto grow• Funds to look for with Peru’s exposure • So Peru is one of the catching up economy of1- iShares MSCI All Peru Capped Index ETF the beginning of this century. The country still(EPU) The fund performance since inception is has plenty of room to grow. Poverty is declining51.74%. The fund seeks investment results that but the majority of the population is still living inare similar in performances and prices to the the informal economy. The government needs toMSCI All Peru Capped Index. step up its infrastructure investment and make sure that the population is benefiting from the2- Funds that will start in the coming months. country’s growth. Mining is subject to volatilityMarket Vectors Andean Equity ETF and the country’s dependence to its naturalMarket Vectors Andean Equity ETF (the “Fund”) resources is one of its weaknesses. Another oneseeks to replicate as closely as possible, is mismanagement and corruption that could bebefore fees and expenses, the price and yield a huge impediment for future growth. Overall,performance of the Market Vectors Andean Index the picture is attractive, the consumer market(the “Index”). is growing, the middle class is slowly building, telecoms are big tracted by mobile usage,Global X FTSE Andean 30 ETF This proposed housing is booming and tourism and agriculturefund would track the FTSE Andean 30 Index, are modernizing and expanding. The monetarya benchmark that includes the 30 largest policy is conservative and institutional investorscompanies in Chile, Colombia, and Peru. The have faith in the country’s economic model.index is free-float adjusted and weighted by Saturday Jan 8th – New York – Melvinmarket capitalization. Manchau