Although US asset purchase “taper talk” has added to uncertainty in emerging markets, Peru’s economy remains strong and the government has the capacity to deal with any economic weakness.
The economy has expanded by an average of 6.4% over the last ten years. Public debt as a percentage of GDP (gross domestic product) stands at a comparatively low 17%. This economic transformation has been driven by trade reform and fiscal consolidation. While the business community was initially sceptical about President Ollanta Humala’s election in July 2011, Humala has maintained a pro-business agenda, which has led the major credit rating agencies to upgrade Peru’s sovereign debt to investment grade.
The 2014 consensus outlook for Peru appears to be more positive, with expectations for a rebound in exports as well as large infrastructure and mining projects coming on stream in 2014. Companies such as Grana y Montero, which operates in the mining, engineering and property sectors are performing well and stand to benefit from new rounds of infrastructure development. Peru’s stock market currently trades at attractive valuations relative to its five-year average and company earnings growth is likely to accelerate. We believe improved economic growth prospects next year coupled with the central bank’s ability to intervene in the currency market if “taper” tailwinds emerge should put the stock market on a firmer footing in 2014.
Chris Palmer is manager of the Henderson Emerging Markets Opportunities Fund, Henderson Gartmore Emerging Markets Fund and the Henderson Gartmore Latin American Fund.
These are fund manager views at the time of writing and may differ from those of other Henderson fund managers. The information should not be construed as investment advice. Before entering into an investment agreement please consult a professional investment adviser.
