An Overview of Peru's Stock Market

Here's an overview of the Bolsa de Valores de Lima, known as the BVL around town and the Peru stock market to the wider world. There are three charts to start this post, one showing the companies and weighting of the IGBVL index (the "general", with the 38 most commonly traded companies), one showing the same for the ISBVL index (the "selective", with 15 top companies), and one showing the weighting per sector in the two indices, to give a broader idea of the compositions involved. As always, click to enlarge.

So let's make some comments on sectors and stocks in bullet point style.

1) Miners. The big sector (not a big surprise, I'd imagine). The top weighted stock is local zinc/lead/silver miner Volcan with 11.36% of the general index (and 18.75% of the selective index). Next up is the interesting Cerro Verde, the big-and-just-got-bigger copper mine near Arequipa that is a JV between Freeport-McMoRan (FCX) (53.5%), Sumitomo (21%), Buenaventura (BVN) (18.5%) and the openly traded 7% approx that is found in the BVL.

Buying Cerro Verde stock is a bit like buying the newest, shiniest and fastest growing bit of FCX's base metals operations. At $28 right now, Cerro Verde offers good value if you believe (as I do) that copper isn't going to drop much further than U$3.50/lb and will move higher in 2009 and onwards.Then comes a whole bunch of miners and mine service plays that all together make up 55.07% of index weight.

This bias gets even worse in the ISBVL index, with a 62.37% weighting to miners. These miners include Buenaventura (BVN) and Southern Copper (PCU) which are well-known to overseas investors but don't take up that much space on the local indices (basically because the heavy market action is in the USA). In the general index, the miners even include Canadian juniors floated in Lima such as Vena Resources (VEM, VEM.to, US pinksheet VNARF.pk) and Candente Resources (DNT, DNT.to, US pinksheet CDOUF.pk).

2) Other larger weightings include the steel sector plays Siderperu and Aceros Arequipa, with a combined 7.49% of the IGBVL and 12.37% of the ISBVL. Also with a relatively high weighting is the Austral Group (3.5% of IGBVL, 5.78% of ISBVL), which makes nearly all its money from Peru's fishery trade. Austral is an interesting stock, as the foods sector is going through a sustained revaluation and Peru's fishing waters are well managed and unlikely to be overfished under the present system.

3) There are five financial stocks that make up 10.64% of the IGBVL index weighting. Of these, we like Credicorp (BAP), which is also available as an ADR on the NYSE. BAP has recently seen a bit of a pump'n'dump move, but should become a strong stock thanks to the recent Fitch "investment grade" country upgrading (that we've talked about already, here are the links to prove it). BAP is also the only financial on the ISBVL list. The current ADR price of U$77 or so might not be the best entry point, as there's a lot of hype going round about the investment grade news. I'd look for something in the low $70's as a place to buy in for the long term hold play, and here's a simple 3 month chart of BAP to show the recent action.

Also worth noting is the dividend paid out annually in April. FY06 paid US$1.10, and FY07 paid US$1.30. Another good reason to hold long term. All in all a very likable bank stock.

4) Sugar. The other large sector in the index is sugar refiners, with five companies in the General index holding 10.72% (in order of weighting importance, Casagrande, Pomalca, Andahuasi, Cartavio and Tuman). Of these Casagrande and Pomalca make it to the ISBVL, holding 9.93% of the index. The Peru sugar plays have all enjoyed recent upside due to the promise of ethanol becoming a greater part of the production mix. However to date the Peruvian sugar industry has been heavy on the plans and light on the execution, and so caution is advised with these companies. Any solid news can be acted upon, but following the rumourmill here is an easy way to lose money. Pomalca strikes me as the best speculative play at this point, but frankly other non-Peru companies in the same sector appeal more (e.g. Ledesma in Argentina or Cosan in Brazil).

5) Other. Other sectors with minor presence include cement (Cementos Lima, Pacasmayo, 3.39% weighting) oil refinery (via Relapasa, majority owned by Repsol, 2.63% IGBVL weighting), power generation (EDEGEL and EDENOR, 2.86% weighting), foodstuffs (via Alicorp, 1.32% weighting) and drinks bottlers JR Lindley, with 2.36% of the IGBVL. Amongst other lines, Lindley handles all the Coca-Cola group soft drinks in Peru.

Commentary

If you believe the rating agencies, the all-knowing analysts and the Peruvian govt., Peru isn't just a land of mining these days. They'll tell you all about the spread of the industrial base, the growth in construction overtaking that of mining, the agro sector (eg asparagus and grapes export), and that 66% of GDP comes from the service sector. However, anyone buying into an index-wide Peru stock fund would have a bit of a shock if metals prices suddenly dropped, no matter how many bags of cement they keep selling in Lima. The BVL is four basic things; mining, mining, mining and then not-mining. No matter what yarn the Peru dudes give you, anyone buying the BVL indices has to be crystal clear on that. Just check the five year chart and how it compares to the GFMS base metals index....see any similarity?

Or if you like, remember that the BVL itself describes the ISBVL index (62% miners) as "the 15 shares that best represent the Lima stock exchange (translated)". The bottom line here is that you either want mining exposure or you want Peru general economy exposure. If you want mining exposure just buy the index blindly, but those looking for exposure to the wider Peruvian economy should either make selective purchases of individual stocks or buy bonds (or perhaps both).

Finally, here's the link to the BVL website, but be warned now that the site absolutely SUCKS. There are no historical charts available, navigation is difficult and there are about 1000 side roads you'll come across that are normally useless. And believe it or not, the site was 'upgraded' a few short months ago. It's worse than the Mexico stock market site, and that really is saying something.

So that's it for this little overview of the Peru stock exchange. As mentioned in the first of the series on the Argentine Merval index, this type of post really does skim the surface and there's a mountain more to say about the subject.

Disclosure: Long PCU

Comments

[eman]

This is a good first slice article. Can anyone comment on how really diversified the Peruvian economy is? As noted in the article the Bolsa is almost completly mining. I'm sure mining also has a beneficial affect on banking, construction etc... I spend at least a few months a year in Lima and construction is booming. I've never been able to figure out where the money is coming from and who's buying all the new condos. Given most of the Peruvians I know couldn't afford them I've always thought it was expats but currently the volume of new construction must exlipse that demand. Any thoughts on what happens to the economy as a whole if metals tank? The peruvian currency has been super strong over the last year or so going from about 3.30 to 2.65 to USD. Where do you think it goes from here?

[NestV]

Thank you Otto, great article. I also believe that the Peru´s market is a great place for investment, I currently hold Creditcorp (BAP). Is there are any mutual fund or ETF that allow us to invest in Peru?

[smart money]

Southern Copper announced a 1.70 per share dividend yesterday.