Record losses on Lima Stock Exchange

The all-time record for losses registered on the Lima Stock Exchange the day before yesterday (around 4%) did not last long – yesterday’s trading made even that drop seem like a minor readjustment.

The General Index (IGRA or IGBVL, the most representative of the exchange as a whole) crashed by 7.59% to close at 18,543 points; while the Selective Index (ISEL or ISBVL), composed of the 15 most traded stocks, dropped by even more: 7.67%, closing at 32,171. Trading was fast and furious, with 3,991 operations totaling 510 million soles or US$161 million.

Among stocks that lost most value were Volcan Inversión (-15.00%), Minera Corona Inversión (-15.00%), Aceros Arequipa (-14.50%), Volcan B (-10.70%), Graña y Montero (-10.40%), Cerro Verde (-10.00%), El Brocal (-9.20%) and Austral Group (-11.00%).

Analyst Willy Espinoza, of Interbank’s trading company Centura SAB, said that a number of external and internal factors combined to make this the biggest drop in the exchange’s recent history. The mining sector, lynchpin of Peru’s economy, saw the biggest drop with an average of 8.12% lost.

“The exchange’s behavior was due to international metals prices, such as that of copper, which dropped due to fears of reduced demand from China. Gold also dropped, as the dollar rose against the Euro,” said the analyst.

He told the Andina agency that the Chinese government’s decision to triple taxes on stock exchange operations had repercussions on the Peruvian market, as well as on other trading floors around the world.

Another factor that he saw as a reason for the drop was “a number of individuals who invest in mutual funds liquefying their assets, as they do not realize that the profitability of the exchange is better measured in the long term, rather than day to day”.

All the same, analysts agree that yesterday’s move does not signal a long term downward trend, but rather a readjustment of stocks that may investors saw as overbought. Economic growth, the successful renegotiation of the Club de Paris foreign debt and continued strength in mining, agroindustry and tourism all present strong indicators for the market as a whole.

The drop in the Lima exchange was in no way mirrored in other stock exchanges in the region, which all closed trading yesterday with overall increases – in Chile, a neighboring country that is also heavily concentrated in the mining sector, the market indices reached record levels yesterday. New York exchanges also rose mildly.

Peru’s national economic risk set to break a record

According to the JPMorgan EMBI+ rating, Peru’s national risk level closed today at 1.01%, down one base point from yesterday.

The rating, that measures performance of Peruvian sovereign bonds as against those issued by the USA, has never dropped below 1%. It is considered a good measure of political risk and the danger that a country might fail to meet its financial obligations.

Coupled with the increased ratings of credit from companies such as Standard & Poors, Fitch Ratings and Moody’s, this brings Peru ever closer to reaching the so-called “investment level”, which is expected to attract a flood of foreign investors.

Lima bus prices set to rise up to 50%

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Lima’s urban transport prices may be set to rise by 20-50% due to increases in fuel costs, according to East Lima transport corporation leader Julio Raurau.

He explained that this month’s price increase, by around 80 centimos per gallon, have forced the corporation to conduct a technical study into price increases to offset costs.

He said that other corporations are conducting similar studies, and that increases may come into effect on Monday in Lima and Callao, and he called on the government to reduce taxes or make available a compensation fund in order to prevent such rises from occurring.

He claimed that companies will be forced to raise prices as they are unable to meet operating costs.

Raurau, who represents a group of some 200 bus operating companies, failed to explain how a fuel price increase of well under 10% can justify a ticket price increase of up to 50%.

The standard price for bus transport in Lima has long held at one sol for short and medium distance rides, despite companies’ attempts to impose higher rates that are more dependent on distance traveled. It remains to be seen whether the public would accept this proposed increase.

Peru stock exchange takes heavy loss, but analyst remain optimistic

Heavy selling on the Lima Stock Exchange (BVL) today brought about its biggest fall in the past 18 months, with a drop of 3.25% as against yesterday’s close leaving the General Index (IGRA or IGBVL) at 20,066 points.

The Selective Index (ISEL or ISBVL), composed of the 15 most traded shares, fared even worse: it dropped over 4% to 34,845.

A total of 147 million soles was traded in 3,094 operations.

Mining stocks were among the heaviest hit, with Peru Copper losing 14.88% over the day’s trading. Other significant losses were experienced by Cerro Verde (-8.40%), Scotiabank (-6.80%) y El Brocal Inversión (-6.70%).

Jorge Luis Rodríguez, head analyst for the Interbank-linked Centura investment broker, attributed the majority of the loss of the index as a whole to Peru Copper’s loss, after it failed to find a bidder for an acquisition or merger. He said that this one company’s losses account for a reduction of over 1% in the general index as a whole.

The rest of the loss he attributed to a continuation of the trend that has been apparent over the past two weeks for investors to sell shares in mining companies, due to a perceived volatility in international metals prices.  He pointed out that “while we didn’t see a further drop in metals prices today, we didn’t see any rise in them either”.

The exchange has been growing in value steadily for some 18 months, over which time it has quadrupled in value – mainly due to activity in the mining sector as international metals prices have continued to rise. The sudden drop in the Lima market over the last two weeks has been seen by many as a readjustment after slight overbuying of mining firms.

Rodríguez remains optimistic about the BVL’s future trends, once this readjustment is complete. Assuming no disastrous drop in international metals prices, he predicts that Peru’s strong and rapidly-growing economy will once again provide the impetus for continued increases in the value of Peruvian shares.

Other markets in the region are not sharing Peru’s current slump, with moderate increases registered around North and South America. In the country dubbed “the economic miracle of South America”, and where fortunes have been made in months on the stock exchange, investors are hoping that this downturn will prove just a blip in a record of ever-increasing growth.

Peru to repay foriegn debt through bond issue, not with currency reserves

Finance Minister Luis Carranza said today that while net international currency reserves will become larger than foreign debt “some time this year”, they will not be used to pay the debt off early.

He said that the foreign reserves, which stand at around US$21 billion, are for protection against the possibility of external effects damaging the Peruvian economy, and not to be used for other purposes.

Talking about the possibility that the Central Reserve Bank of Peru (BCRP) might buy sovereign bonds, he said that it would be a possibility “once the country has reached investment grade” in terms of credit and international risk.

He said that the prepayment of debt to the Club de Paris countries will be made possible through the sale of bonds on the local and international capital market, with attempts made to keep the bonds in the country by offering 30 year bonds in Peruvian soles and at a fixed interest rate.

Currently, the Andina agency estimates that around 30% of Peruvian bonds in soles are held by foreign investors.

Carranza explained that the bonds will be issued according to a carefully designed program, intended to prevent instabilities in the dollar-sol exchange rate – and perhaps also helping the BCRP to prevent overvaluation of the sol.

The early repayment of the Club de Paris debt will save the country some $400 million per year between now and 2015, and, once finalized, is likely to make Peru’s international risk rating drop below 1% for the first time in history. This will help the country reach the “investment level” of credit, which is expected to bring about a flood in foreign investment.

Carranza also mentioned that Peru’s foreign debt stands at 30.8% of GNP, and is likely to drop below 30% within the year. 

Lima ranked 15th best city for Latin American business

Lima has moved up from 27th to 15th position in America Economia magazine’s annual listing of the region’s best cities to do business in. This makes it one of the year’s biggest gainers.

As was the case last year, Miami and Santiago de Chile occupy the two top spots given their safety, quality of life, excellent communications infrastructure and good macroeconomic prospects. However, Miami is threatened by high living costs and by immigration difficulties for Latin Americans, while Santiago is seen to have problems with civil unrest, pollution, and the chaotic recent introduction of a new public transport system.

Monterrey (Mexico) and Sao Paolo (Brazil) take the next two places, but both suffer from severe problems from a safety perspective, particularly in Monterrey, where violence associated with drug trafficking is an ever growing problem on the city’s streets. Sao Paolo’s government and police are said to be incapable of dealing with problems of murder, kidnapping and gang-related violence.

Buenos Aires, showing the year’s biggest rise in ratings, is now situated in fifth place, while Queretaro (Mexico) and Curitiba (Brazil), in sixth and seventh positions, show the first medium sized cities in the top placings.

The ranking is made using a variety of sources including the World Monetary Fund, the World Bank, the countries’ central banks, municipal information sources, crime statistics, and a survey of over 1,700 business people active in the region.

Investors bearish as Lima Stock Exchange drops over 2%

The Lima Stock Exchange (BVL) closed today with negative indicators, as investors cashed in the gains they have made in a climate of increasing share values.

The General Index (IGRA or IGBVL), most representative of the market as a whole, dropped 2.38% to 20,741 points, while the Selective Index (ISEL or ISBVL), composed of the 15 most traded stocks, dropped 2.80% to 36,301.

2,052 operations totaled 55.4 million soles or $17.5 million traded.

Among the shares that lost most value today were Agroindustrial Pucalá (-12.97%), Aceros Arequipa (-6.25%), newspaper El Comercio (-6.25%), Hidrandina (-6.17%), Cerro Verde (-5.84%) and Peru Cooper (5.76%).

Analyst Jose Menor suggested that the drop is due to investors selling after over-buying in recent months, as reflected in the strong tendency of the market to gain value in session after session. Some now fear that the market has reached a peak, and are trying to sell out in advance of a forecast drop over days and weeks to come.

In any event, the analyst said that such short term fluctuations are common in markets like the BVL, and that reductions are unlikely to last beyond the first week in June.

What is more, he pointed out that some mineral stocks may even be undervalued in view of stable metals prices on the world market, so parts of the market may buck any downward trend.

In the rest of the region, markets closed today with increases, so it seems that this drop is a local phenomenon. The New York exchanges were closed for Memorial Day.