Peruvian Stocks Rally After MSCI Decision Eases Downgrade Risk

  • MSCI decides against moving Southern Copper out of Peru index
  • Losing company would have converted Peru into frontier market

Peruvian stocks extended a world-beating rally after MSCI Inc. decided to keep Southern Copper Corp. in its Peru index, giving a boost to the Andean nation as it seeks to avoid demotion to frontier-market status.

Lima’s S&P/BVL Peru General Index climbed 1.5 percent to 13,730.89 at 9:27 a.m. in Lima, the second-biggest gain among 103 primary indices tracked by Bloomberg. The index has surged 40 percent this year, the most in the world.

MSCI decided against reclassifying Southern Copper, which is controlled by Mexican billionaire German Larrea’s Grupo Mexico SAB, as a U.S. company after feedback from market participants, MSCI said Thursday. Losing Southern Copper would have left Peru without enough stocks that meet the liquidity criteria of MSCI’s emerging-market category, likely triggering its reclassification as a frontier market and billions of dollars of outflows, according to Lima Stock Exchange Chairman Christian Laub.

“This is a very important step to keep us as an emerging market,” Laub told Radio Programas on Friday. MSCI will announce the result of its review of Peru’s market classification on June 14.

While Southern Copper was incorporated in Delaware and is headquartered in Phoenix, Arizona, its revenue stems from mine operations in Peru and Mexico. Moving the company to the U.S. index would have been detrimental to investors that use MSCI’s index to invest in Latin America, where Southern Copper is the leading listed producer, said Fernando Saavedra, a money manager at Lima-based pension fund Prima AFP.

Trading volumes on the Lima bourse have increased this year after the government waived a stock tax, spurring market making and the market’s first stock-lending operation.

“We’ve already passed the inflection point in liquidity,” Saavedra said by phone before MSCI’s announcement. “With Southern remaining in the Peru index, it will ease concern among investors about what happens in June. Peru is going to stay as an emerging market.”

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