MSCI Gives Peru Until Next Year to Avoid Stock Downgrade

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  • Company says Peru could be reclassified as frontier market
  • Reclassification could have triggered $5 billion in outflows

Peru won a reprieve as MSCI Inc. affirmed its status as an emerging market, ending the threat of a downgrade to frontier status that the bourse said could have spurred as much as $5 billion of outflows from what is already the world’s worst-performing stock market.

The nation’s shares will stay in the same category as Brazil, Mexico and Russia, according to a statement Wednesday from MSCI, whose indexes are the benchmark for more than $9.5 trillion in assets worldwide. The Peru index will be added to the review list for potential reclassification to frontier markets as part of the 2016 annual review, according to an MSCI statement Wednesday.

“Failure by the Peruvian authorities and the stock exchange to reverse the declining trend in liquidity in the equity market” may lead to reclassification in June, MSCI said in the statement.

The decision comes after MSCI warned last month 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 this month as part of measures to avoid the downgrade, and officials from the government and Lima Stock exchange traveled to New York to explain their plans to increase trading volumes over the next two to three years.

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 this month. Peru’s benchmark equity index has declined 32 percent this year, the worst performance among 93 global gauges tracked by Bloomberg.

“Nine months is a short time span,” Carlos Rojas, managing partner at Andino Asset Management in Lima, said in an e-mail. “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.”

MSCI also said it’s considering moving Southern Copper Corp. from its Peru universe to the U.S.

“If reclassification of Southern Copper results in less than three securities in the MSCI Peru equity investable universe, MSCI would reclassify the MSCI Peru index to frontier markets as soon as practicable,” MSCI said in the statement.