- Company says Peru may still be demoted to frontier market
- Reclassification could have triggered $5 billion in outflows
Peruvian stocks jumped and its currency gained after index compiler MSCI Inc. gave the country until June 2016 to avoid a downgrade to frontier market status.
The S&P/BVL Peru General Index rose 0.8 percent as of 12:27 p.m. in Lima, on course for the highest close since Sept. 21. The sol strengthened 0.1 percent to 3.232 per dollar, according to Datatec prices. Miners Soc. Minera Cerro Verde SAA, Minsur SA, Cia. Minera Atacocha SAA and Cia. Minera Milpo SA were the biggest gainers.
The nation’s shares will stay in the same category as those of Brazil, Mexico and Russia, according to a Wednesday statement from MSCI, which compiles indexes that serve as the benchmark for more than $9.5 trillion in assets worldwide. A downgrade to the same frontier status as Argentina and Zimbabwe could have spurred as much as $5 billion of outflows from what is already the world’s worst-performing stock market this year, the Lima Stock Exchange said.
“Now it’s up to the local regulators, the stock exchange and the Finance Ministry to do the hard and intense work needed to create liquidity in the market,” Carlos Rojas, managing partner at Andino Asset Management Sac in Lima, said in an e-mail. “Nine months is a short time span.”
The decision comes after MSCI warned in August that only three securities from the country met the size and liquidity requirements for emerging-market equities. Peru eliminated a 5 percent tax on stock gains in September as part of measures to avoid the downgrade.
A reclassification would have a negative impact on the stock market integration between Peru, Chile, Colombia and Mexico, Finance Minister Alonso Segura told reporters in New York last month. Peru’s benchmark equity index has declined 31 percent this year in local currency terms, the worst performance among 93 tracked by Bloomberg.
“Failure by the Peruvian authorities and the stock exchange to reverse the declining trend in liquidity” may lead to reclassification in June, MSCI said in the statement.
The Finance Ministry is preparing tax legislation designed to spur trading volumes, it said in an e-mailed statement on Thursday. Regulators may also respond by introducing rules to allow short-selling and stock lending, Credicorp Capital said in a note to clients.