The Pot Is Boiling In Peru

If Peru should ever revise its coat of arms, Wall Street has a suggestion: Replace the vicua in the upper-left-hand corner with a bull. Even after the Peruvian stock market's rebound from a severe drop sparked by turmoil in Mexico and hostilities with Ecuador, fund managers and analysts say the Peruvian stock market is the place to be. "At 15%, it's my fund's largest weighting," says Joyce Cornell, portfolio manager for Scudder, Stevens & Clark Inc.'s Global Emerging Markets Fund, an offshore fund for institutional investors.

Cornell's enthusiasm for Peru stems from its booming economy. In 1994, real gross domestic product grew by about 12%, and inflation fell from 39% to 15%. "You'll see real profit growth of 50%, and the market is trading at 15 times earnings," says Cornell. "That combination is a steal in any country." The reelection of President Alberto Fujimori is another plus, creating more political stability. Cornell expects 10% GDP growth in 1995 and inflation of about 10%. Other analysts peg GDP growth closer to 5% and inflation at 15%.

STURDY. Of course, investors once rhapsodized about Mexico, too. Observe Peru's share of problems: continued, though reduced, terrorism; tensions with Ecuador; and a growing trade deficit. But the catalyst for Mexico's meltdown--a balance-of-payments crisis--shouldn't shake Peru. "Peru has some foreign exchange stability, with its reserves continually increasing," says Stefano Natella, director of Latin American research at CS First Boston.

Natella says Peru's main restriction is a thin market. Some 200 stocks are on the exchange, and the top 15 to 20 stocks make up about 90% of its $10 billion-plus market capitalization. But Peru has some sizable companies that Cornell and others describe as blue chips.

Investors ready to take the plunge might consider Minsur, a low-cost tin mine, Southern Peru Copper, and Banco de Credito, says Miguel Palomino, general manager of Smith New Court's Peru office. A popular pick: Cerveceria Backus & Johnston. It has about 85% of the beer market in Peru.

Right now, only one Peruvian American Depositary Receipt is available on the New York Stock Exchange--Banco Wiese. For price quotes on any other Peruvian stock, investors are dependent on the quotes obtained by brokers from market makers in the stocks. But a number of mutual funds have positions in Peru. As of Mar. 31, the Merrill Lynch Latin America Fund had 4.2% in Peru, up from 3.7% in the previous quarter, and the Scudder Latin America Fund and the Montgomery Emerging Markets Fund both had about 2% holdings. After the crisis in Mexico, taking such small steps into Peru may be a more comfortable pace for investors.

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