Fri, Aug 8 2008, 16:28 GMT
http://www.djnewswires.com/eu/
FX Street
By Robert Kozak
Of DOW JONES NEWSWIRES
LIMA (Dow Jones)–After hitting record highs in 2007, Peru’s stock market indexes have given up nearly half of those gains so far this year, dragged down by weakness in various sectors, particularly commodities.
Stock pickers say the miner-heavy equities market will remain hostage to falling metals prices and international financial market volatility.
Peru received investment grade debt ratings from Fitch Ratings and Standard & Poor’s this year, while the economy has been growing around 10%. Despite the optimism and robust growth, investors have turned apathetic about the Lima Stock Exchange.
That is a sharp turnaround from the bustling gains posted in recent years. The stock market’s broad General Index had gained 75% in 2003, 52% in 2004, 29% in 2005, 168% in 2006 and 36% in 2007.
On July 24 last year the General Index hit a high of 23,789.75. So far this year, to the end of trade on Thursday, the General Index has dropped 24% to 13,242.19. This leaves it some 44% off its peak just more than a year ago, deep into bear market territory.
“A good portion of the indexes are tied to minerals, so any drop in metals prices has a negative effect on the stock market,” said Cristina Leon, a trader with brokerage Centura SAB.
The stock market’s mining subindex has declined some 26% so far this year. Mining companies make up more than half of the General Index.
Analyst say uncertainty in international stock markets has also hit at the Lima stock exchange, as foreign investors try to resolve other problems before investing in Peru.
Limited liquidity on the Lima exchange has also impeded investors from taking bigger stakes, while leading to increased volatility.
Flows of cash into the stock market from local investors, in good part through mutual funds and by voluntary contributions to private pension funds, have also eased to some extent.
Citigroup Global Markets noted that Peru was the second-worst performer in Latin America in July after Argentina.
Pessimism Hits Key Blue Chip Shares
The weakening interest has hit hard at some widely-traded blue chip shares.
Base metals miner Southern Copper Corp. (PCU) has weakened about 29% so far this year, ending Thursday at $24.40. Precious metals miner Compania de Minas Buenaventura SAA (BVN) has lost some 22% so far this year, with its ADR ending Thursday at $22.82.
Financial holding Credicorp Ltd (BAP), which owns the largest bank in Peru, has done better, with its share price rising only 0.6%, and ending Thursday at $73.98.
Market analysts say steadily tighter monetary policy in Peru has taken some of the wind out of the sails of the banking sector.
The agricultural sector hasn’t been spared either, after being hit by lower-than-expected earnings. The agriculture subindex has fallen 43% this year.
“The agricultural sector has fallen alongside the rest of the stock market. There could have been some disappointment that earnings weren’t as good as expected,” said Alonso Ubilias, an analyst with Banco de Credito.
Hopes For Rebound
Hopes that the worst is over for the market are growing.
“On the local front, base metals prices and investor sentiment will continue to guide the indexes on the Lima exchange. Nonetheless, we expect some bargain hunting as many local shares are trading at attractive multiples,” Centura SAB said in a recent report.
Merrill Lynch says that at the end of the first half of the year, Peru’s 12-month forward PE ratio was 12.9, compared with 10.9 for total Latin America. It says the 12-month trailing PE ratio in Peru was 13.7 compared with 14.2 for Latin America.
“We don’t expect that the decline in the last 12 months will be reversed completely, but neither do we believe that the stock market will fall a lot more,” Carlos Sotelo, director general of mutual fund company, Credifondo, told newspaper El Comercio this week.
-By Robert Kozak, Dow Jones Newswires; peru@dowjones.com; 51-1-99927-7269
(END) Dow Jones Newswires
August 08, 2008 12:28 ET (16:28 GMT)
Copyright 2008 Dow Jones & Company, Inc.
