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Peru’s GDP expectations increase across the board

GDP growth expectations in Peru 2013-03-11Enlarge Graph

The latest survey by the Peruvian Central Bank showed that GDP growth expectations were up in January, which is a positive development after many investors thought Peru was losing steam.

Investors interested in Latin America need to look beyond Mexico (EWW) and Brazil (EWZ) to recognize the full potential of the region. Last year Peru had an impressive growth and investors focused on the largest economies would have missed out on the 24% return by EPU, the ETF tracking the Peruvian stock market.

The Peruvian Central Bank carries out a monthly survey of economists and executives from both financial and non-financial companies to gauge their expectations for the end of year GDP growth figure. The survey for the growth expectation for 2013 started in Oct 2011 and thus far has shown an improving trend. The January 2013 reading was the first one to show an increase in growth expectation across the board. Previously, non-financial companies had kept their projections at 6.0%, but in January these were revised upwards to 6.20%. Financial companies increased their expectations as well to 6.30% and economists are now predicting 6.25%.

The upward revision of the predictions from the three different groups is positive for EPU, especially since the ETF had been trading sideways over the past two months after a sharp decline at the end of January.

Investors in other Latin America focused ETFs, such as ILF and GML, should realize that the exposure of these ETFs to Peru is a mere 3%. These Latam ETFs are usually dominated by Brazil (~50%) and Mexico (25%) given the size of their stock markets and offer little exposure to other fast growing markets like Peru. In order to achieve higher returns, investors may want to allocate a small portion of their investments into smaller, higher potential (though more volatile) countries like Peru, while keeping a larger portion in larger and safer anchor markets.

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