International -- Finance: PERU
THE POT IS BOILING IN PERU (int'l edition)
If Peru should ever revise its official coat of arms, Wall Street has a suggestion: Replace the vicua in the upper-left-hand corner with a bull. Even after the Peruvian stock market's rebound from a severe drop sparked by turmoil in Mexico and hostilities with Ecuador, fund managers and analysts say the Peruvian stock market is the place to be. "At 15%, it's my fund's largest weighting, which should tell you how bullish I am on Peru," says Joyce Cornell, portfolio manager for Scudder, Stevens & Clark Inc.'s Global Emerging Markets Fund, an offshore fund for institutional investors.
Cornell explains her enthusiasm by pointing to Peru's booming economy. In 1994, the country's gross domestic product grew by about 12% and inflation fell to 15% from 39%. "You'll see real profit growth of 50%, and the market is trading at 15 times earnings," says Cornell. "That combination is a steal in any country." The recent landslide reelection of Peruvian President Alberto Fujimori is another plus, creating a more stable political environment. Cornell expects 10% GDP growth in 1995 and inflation of about 10%. Other analysts are pegging economic growth closer to 5% and believe that inflation may remain near 15%.
STEADIER LEGS. Of course, people once rhapsodized about Mexico, too. And Peru has its problems: continued--although reduced--terrorism, tensions with Ecuador, a growing trade deficit. Snags in a planned wave of privatizations could hurt the market. But the catalyst for Mexico's meltdown--a balance-of-payment crisis--shouldn't knock down Peru. "Peru has some foreign exchange stability, with its reserves continually increasing," says Stefano Natella, head of Latin American research at CS First Boston.
Natella says Peru's main restriction is the stock market's limited liquidity. Some 200 stocks are listed on the exchange, and the top 15 to 20 stocks make up about 90% of its $10 billion-plus market capitalization. But unlike some emerging markets, Peru has a number of good-size companies that Cornell and others consider solid enough to call blue chips. In addition, Fujimori's privatization plans and ongoing free-market reforms should bring more companies to the exchange.
Investors willing to take the plunge might consider Minsur, a low-cost tin mine, Southern Peru Copper, and Banco de Credito, says Miguel Palomino, general manager in the Peru office of Smith New Court Inc. Consumer goods companies also show up on analysts' lists. "The idea is that the growth in Peru ...should trickle down to lower-income segments of the population and increase the consumption of low unit price goods," says Natella. That hasn't materialized yet. If it does, brewer Cerveceria Backus & Johnston, which controls about 85% of the beer market in Peru, would benefit.
Right now, only one Peruvian American Depositary Receipt (ADR) is available on the New York Stock Exchange--that of Banco Wiese. For price quotes on any other Peruvian stock, investors are dependent on the quotes their brokers get from market makers in Peruvian stocks.
For investors satisfied with more diluted exposure to Peru, a number of mutual funds have small positions. As of Mar. 31, the Merrill Lynch Latin America Fund had 4.2% in Peru, up from 3.7% in the previous quarter, and the Scudder Latin America Fund and the Montgomery Emerging Markets Fund both had about 2% holdings. After the crisis in Mexico, taking such small steps into Peru may be a more comfortable pace for investors.By Suzanne Woolley in New York, with Adriana von Hagen in Lima