March 31 (Bloomberg) -- Peru’s stock market, Latin America’s worst performer last year, is the world’s biggest gainer in 2009 as a rebound in raw-material prices helps send the economy to the fastest growth rate in the region.

The Lima General Index surged 38 percent in March, the steepest monthly advance in 16 years. The gauge climbed 31 percent for the quarter, eight times the gain in the MSCI Latin America Index and the biggest rise among 89 equity benchmark indexes tracked by Bloomberg.

Sociedad Minera Cerro Verde SA, Peru’s third-biggest copper producer, and Volcan Cia. Minera, the largest zinc miner, jumped more than 50 percent on speculation demand for metals will fuel growth in the Andean country. Stocks may keep rising as domestic investors return after a record 60 percent decline in the Lima index in 2008, said Gonzalo Presa, head of local equities at AFP Horizonte, Peru’s largest pension fund by contributors.

“Companies that were unjustifiably punished are recovering,” said Presa, who helps manage $3.4 billion in Lima. “As long as international markets stabilize, there’s still a lot more scope for stocks to rise.”

Peru’s index climbed 3.9 percent today as mineral exploration companies Vena Resources Inc. and Candente Resource Corp. gained at least 12 percent.

Metals Rally

The Bloomberg Base Metals 3-Month Price Commodity Index has recovered 9.3 percent this year after losing almost half its value in 2008. Gold capped a second straight quarterly gain as a weaker dollar boosted the appeal of the precious metal as an alternative asset. Peru is the world’s third-largest producer of copper, zinc and tin, the biggest miner of silver and the fifth- largest of gold.

“You have the benefit of commodity prices rebounding, which is most of the Peruvian market, and people continue to talk about the domestic economy as one of the fastest growing in the world this year,” said Banco Santander SA’s Alonso Aramburu, Institutional Investor’s top-ranked analyst for Andean nations last year.

Peru’s economy will expand 4.1 percent this year, the highest rate in Latin America, according to the median estimate of eight analysts surveyed by Bloomberg. Growth probably will be 5 percent in 2009 after averaging 7.6 percent over the last five years, central bank President Julio Velarde said March 13.

Brazil’s gross domestic product will increase 0.8 percent this year while Mexico’s will shrink 1.2 percent, according to the median forecasts in Bloomberg surveys.

‘Price for Everything’

Investors snapped up Peruvian shares after the Lima General Index fell to a valuation of 7.66 times reported earnings at the end of 2008, compared with 9.38 times for the MSCI Latin America Index. With this year’s gain, Peru stocks now fetch 17 times profit, making them the most expensive in the region.

John Ditierri of Emerging Markets Management LLC in Arlington, Virginia said he may cut Peru’s weighting to “neutral” from “overweight” after the surge in March.

“There’s a price for everything,” said Ditierri, who bought Peruvian gold stocks in late 2008 and earlier this year.

Foreign investors also may stay away because Peru’s market is less liquid than others in the region, Presa said.

Daily Trading

Peru stocks had a market value of $50.7 billion as of yesterday, less than 10 percent of the $642.1 billion in Brazil, Latin America’s biggest market. Lima’s exchange is trading an average $13 million a day this year, down from $33 million last year. That compares with $1.7 billion in Brazil and $30.2 billion on the New York Stock Exchange, according to data compiled by Bloomberg.

JPMorgan Chase & Co. has an “underweight” recommendation on the country because of a shortage of easy-to-trade stocks and most of the biggest companies are commodity producers.

“We’re not particularly bullish on materials, so in that case it’s very difficult to get behind the market in general in Peru,” said Brian Chase, JPMorgan’s Santiago-based head of Andean equity research.

More than half the companies in the Lima index are raw- material producers, compared with a fifth of those in Brazil’s Bovespa. In MSCI Inc. country indexes, Peru has the biggest commodity weighting in Latin America at 74 percent, compared with Brazil’s 56 percent.

Cerro Verde, Volcan

Cerro Verde rallied 59 percent in 2009 as prices for copper surged 32 percent. The Arequipa, Peru-based company plunged 65 percent in 2008.

Lima-based Volcan surged 67 percent this year after sinking 82 percent in 2008. Zinc, used to protect steel against rust, has climbed 9.3 percent on the London Metals Exchange.

Gold futures increased 3.9 percent this year, while silver rose 15 percent, as investors bought the precious metals as a hedge against inflation.

Credicorp Ltd., Peru’s biggest financial company, rallied 30 percent this month, paring its loss for 2009 to 5.9 percent.

“If the mining sector attracts more investment in Peru, it will be overall pretty good for domestic demand and the financial sector will do well as a result,” said Roberto Lampl, who helps manage about $12 billion in emerging-market assets at ING Investment Management in The Hague

Lampl has been buying Peru stocks this year. His ING Global Emerging Markets Fund returned 12.2 percent over the past three months, almost double the average of its peers, according to Bloomberg data.

The Lima General Index is still down 47 percent in the past 12 months, compared with the Bovespa’s 33 percent decline and the 37 percent drop in Mexico’s Bolsa.

Santander’s Aramburu, who is “neutral” on Peru within Latin American markets, says a recovery in the global economy in the second half of the year would boost raw material demand.

“If that happens, I think there is a big possibility that Peru is a big outperformer this year,” he said.

To contact the reporter on this story: James Attwood in Santiago at jattwood3@bloomberg.net

Last Updated: March 31, 2009 16:39 EDT