Peru Stocks Extend World’s Best Rally as Argentina Gains on MSCI

  • MSCI says Peru will remain in its emerging-market index
  • Argentina to be reviewed for potential upgrade from frontier

Peruvian shares extended the world’s biggest equity rally this year after MSCI Inc. kept the South American nation in its emerging-market index, while the firm’s decision to review Argentina for a possible upgrade lifted the country’s shares.

The S&P BVL Peru General Index climbed 2.1 percent Wednesday as of 12:27 p.m. in New York, bringing its surge since the end of December to 39 percent, the most among 94 equity benchmarks tracked by Bloomberg. Peru’s sol strengthened 0.6 percent. Meanwhile, Argentina’s Merval equity gauge rose 1.2 percent, halting a four-day slide.

MSCI’s decision to keep Peru’s emerging-market grade allows the nation to retain investors who might otherwise have to sell because of limits on the kinds of stocks in which they can invest. Meanwhile, Argentina will be included in the firm’s 2017 market review to determine if it’s ready to leave its frontier status after President Mauricio Macri took steps aimed at jump-starting growth and restoring confidence.

“The chances that Peru would remain in emerging markets were high, but the ruling is still a relief for investors,” said Giovanna Musa, who oversees Latin American stocks for fund manager Euroamerica Administradora General de Fondos SA in Santiago. “As for Argentina, this is a sign of normalization of its economy.”

Since taking office in December, Macri has eliminated most capital controls, scrapped some export taxes and reached a deal with creditors from the nation’s historic default in 2001. A reclassification by MSCI, whose indexes are the benchmark for more than $10 trillion in assets worldwide, would be significant because funds with about $1.7 trillion in assets track MSCI’s emerging-market index, compared with just $26 billion for the frontier gauge.

“We’re doing our best to give the right signals to be part of MSCI’s emerging-market index,” said Marcos Ayerra, the head of Argentina’s Comision Nacional de Valores, the nation’s securities regulator. “There’s a fight in the region for investors, so you really need to be more attractive to stand out. Being part of the emerging-market index will add market liquidity and accelerate the market for initial public offerings.”

Meanwhile, Peru’s government had prioritized retaining its emerging-market grade, with lawmakers waiving a tax on stock gains in an effort to boost trading volumes. The moves coincided with a pick-up in investor sentiment after Peruvians shunned a candidate viewed as unfriendly to investors in the country’s presidential race, and as speculation a rally in commodities would bolster the fastest-growing major economy in Latin America. Peru’s reclassification as a frontier market would have lead to billions of dollars of outflows, according to Lima Stock Exchange Chairman Christian Laub.

“Market sentiment has changed, producing a notable increase in trading,” said Marco Contreras, a senior analyst at Kallpa Securities SAB in Lima. “We’re going to have a government viewed by the market and the international community as very market friendly, unlike the existing one, which is going to bring more investment flows to Peru.”

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