Of note:Peru Stocks Gain as Economy Lifts Builders Over Mines By...

Of note:

Peru Stocks Gain as Economy Lifts Builders Over Mines

By Alexander Ragir

March 27 (Bloomberg) -- Domestic growth is turning Peru's mining-dominated stock market into the Americas' best performer this year even as the prices of zinc, gold and copper remain below last year's peaks.

The Lima General index has surged 182 percent in the past 12 months, driven by companies such as Grana y Montero SA, Peru's biggest builder, and industrial equipment distributor Ferreyros SA. Prices of four of the five metals Peru produces -- copper, zinc, gold and silver -- are lower than their 2006 records even after recovering some of those losses in 2007.

The economy grew at the fastest pace in 12 years last year as the government bought back debt held in dollars and boosted foreign reserves to fortify an expansion entering its sixth year. Citigroup Inc. says Peru will post faster growth and lower inflation this year than any other major Latin American country.

``We are very positive on Peru,'' said Roberto Lampl, who helps manage $3 billion in emerging market stocks at ING Investment Management in The Hague. He owns shares of Credicorp Ltd., Peru's top financial holdings company, and gold miner Cia. de Minas Buenaventura. ``Peruvians are pouring excess savings into the stock market. There was tremendous earnings growth with some companies.''

Both local and foreign stock investment in Peru broke records in February, a month that ended with the biggest selloff since June in world emerging markets. Miners make up 55 percent of the stock index, which gained for a fourth day, rising 0.6 percent to a record 16,572.57.

Forecast

Citigroup in a note to investors forecasts 7.4 percent growth in gross national product and 1.7 percent inflation in Peru this year, compared with 4.4 percent growth and 5.1 percent inflation for the region as a whole. Grana y Montero's profits more than tripled last year while Ferreyros's more than doubled.

Zinc is down 24 percent this year and 29 percent from its Nov. 24 peak. Copper prices, up 7 percent this year, remain 25 percent off their May 23 record. Gold, up 3.8 percent this year, is down 8 percent from its May 11 high last year. Silver, which peaked the same day, is down 11 percent since then and up 3.1 percent this year. Tin is up 26 percent this year and 77 percent in the past 12 months.

The Peruvian market outperformed other markets earlier this year in the midst of a global selloff sparked in China. The Lima index fell 1.7 percent in the week ending March 2 while the Morgan Stanley Capital International index of Latin American shares lost 8.6 percent. Peru's index recouped its loss within a week; markets in Brazil, Argentina, Mexico and Canada remain below their February peaks.

Earnings

Oil-related companies that are widely held by foreign investors, such as Petroleo Brasileiro SA in Brazil and Tenaris SA in Argentina, led declines in the respective indexes for those countries. Canada's Suncor Energy Inc. has fallen 6.5 percent this year.

In Peru, by contrast, markets were shored up by ``very good'' earnings and economic stability that ensured investments would hold their value, said Jaime Caceres, president of AFP Integra, Peru's largest pension fund.

Since copper's May 24 record, Peru's stock index has more than doubled.

The government bought back $2.489 billion of dollar- denominated bonds on Feb. 23, taking advantage of a strengthening sol to cut foreign debt. Fitch Ratings raised Peru's outlook for its foreign-currency debt rating to ``positive'' from ``stable'' on March 6.

`Excess Demand'

Juan Jimenez at BBVA Continental SAB in San Isidro, Peru, is more skeptical, saying mining stocks rose when commodity prices fell because of ``excess demand'' for stocks in Peru.

``It was stock market fever,'' said Jimenez, who helps manages $630 million in assets. ``Mining stocks are far above their real value.''

Southern Copper Corp. began the year with an estimated 6.7 price-to-earnings ratio, according to Centura. The multiple climbed to 9.3 times estimated earnings as of March 19, according to Centura. That compares with a multiple of 5.9 times earnings at Southern Copper's parent, Grupo Mexico SAB, according to data compiled by Bloomberg. China's Jiangxi Copper Company Ltd. trades at 5.61-times earnings.

The Peruvian market's relatively slow trading and a lack of variety in its industries also are keeping the market from growing faster, said William Landers at Blackrock Inc. in Plainsboro, New Jersey.

The Lima General index had 223 million trades in February, less than a thousandth of the Brazilian exchange's 226 billion trades that month.

Only Choice

``If you're not into copper, there's not very many options,'' said Landers, who manages $4 billion in Latin American equity for Blackrock.

Credicorp is the only non-mining company from Peru included in the MSCI Latin America index, which fund managers use as a benchmark for their portfolios. The shares, traded in dollars in New York and Lima, have gained 20 percent this year.

Gustavo Urrutia, an analyst at Centura, estimates that the Peru General index trades at an average of 10.2 times projected earnings. Brazil's Bovespa traded March 19 at 10.18 times earnings while Mexico's Bolsa was at 12.91 estimated earnings.

Local investment is boosting shares. Stock holding by Peruvian residents surged 75 percent in 12 months to $14.5 billion in February, according to Cavali, the exchange's administrative division.

Foreign Investment

The value of foreign stock investment in Peru almost doubled in a year to $10.9 billion in January, according to data on Cavali's Web site. Brazil holdings in 15,000 funds tracked by Emerging Portfolio Fund Research grew 21 percent to $68.1 billion as of January.

Grana y Montero profits benefited from a surge in construction. Its shares rose eight-fold in 2006 and another 51 percent this year. Shares of Ferreyros, Peru's largest heavy goods machinery distributor, quadrupled last year and added 52 percent this year.

``Higher commodity prices has a direct affect on Peru's market,'' said Jorge Luis Rodriguez, head of research at Centura. ``But more importantly, the economic fundamentals are solid and that's what will last in the long run.''

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