Peru: Latin America’s growth engine

Peruvian stocks are driving growth in Latin America. Investors looking to play Peru should buy these two stocks.

In Latin America, investors tend to concentrate on Brazil or Mexico, but they're overlooking one of the region's "most consistent growth engines" Peru, says Shuli Ren in Barron's.

Since 2000, Peru's economy has expanded at an average annual rate of 5.6%, compared to a South American average of 3.3%.

Peruvian stocks are largely a commodities play. The country produces large quantities of gold, silver, copper, oil and gas, and that means raw materials dominate the stock market index.

Sadly, the index has fallen along with metals prices, but the money from the raw-materials boom, along with sound economic management, is allowing the country to diversify, as James McKeigue of LatAm Investor, and MoneyWeek's The New World free email, points out.

Much of the commodities cash has been channelled into infrastructure, thus helping other sectors to gain strength. Inflation is under control and there is a budget surplus.

All this means that the domestic economy is gathering strength, says Ren. Lending to businesses and consumers is growing fast, but there's still scope for further growth: credit is only worth 30% of GDP in Peru, compared to 56% in Brazil and 98% in Chile. Moving away from credit, the retail sector is worth only 25% of GDP and that figure will rise fast.

JPMorgan estimates that the proportion of households entering the $10,000-and-above wage bracket will jump from 41% to 61% by 2018.

Two good plays on Peru, says McKeigue, are Credicorp (US: BAP), a highly profitable bank, and cement producer Cementos Pacasmayo (US: CPAC), a beneficiary of the infrastructure building push.

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