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April 20, 2011 12:03:49 | in finance, stock market

Prima AFP, Peru’s biggest pension fund, bets on price rebounds

By John Quigley
Bloomberg.com 


peru
Alejandro Perez-Reyes, head of investments at Prima AFP, in a 2010 TV interview.

Prima AFP, Peru’s biggest pension fund manager, is taking advantage of the biggest stock selloff in more than two years and declines in the country’s bonds and currency to buy assets as a bet prices will rebound after presidential elections.

Stocks are undervalued after the country’s benchmark index plunged 8.9 percent last week following candidate Ollanta Humala’s victory in the first-round ballot, said Alejandro Perez-Reyes, head of investments at the Lima-based company.

Foreign investors have fled Peruvian securities on concern that a Humala victory may stunt economic growth and sap profits in the mining and energy industries, Perez-Reyes said.

“Being long-term investors in a market with good perspectives and some nervousness is actually a good position to be in,” Perez-Reyes said. “You take a short term hit and then go out and buy positions at very interesting prices.”


Prima, which has 26% of its 26.5 billion soles ($9.38 billion) in assets in Peruvian stocks, sold shares and bet against the sol before the April 10 first round of the election as it anticipated the drop in asset values, Perez-Reyes said in an interview in Lima yesterday. The Lima General Index dropped 9.1 percent in the past month, the second-biggest slide among 90 primary indices tracked by Bloomberg, on concern Humala, a one- time ally of Venezuelan President Hugo Chavez, will win the June runoff vote and prompt international companies to pare planned investment projects worth $50 billion.

Selective Buying

Prima is now “selectively” buying stocks as it expects private investment and consumer demand to continue fueling Latin America’s fastest-growing economy regardless of who wins the election, Perez-Reyes said. Investors will probably overreact to the first opinion poll on the election runoff, due for release April 24, as well as the final vote, whoever wins, Perez-Reyes said. This may create more buying opportunities, he said.

Investors are concerned Peru’s next president may seek “radical” changes to economic policies, such as nationalizing companies or scrapping free-trade agreements the government expects will double Peru’s exports to $70 billion within five years, he said.

“It’s not a question of who wins the elections but what policies are implemented,” Perez-Reyes said. “There is a chance of a big shift in economic policy that could change fundamentals. We hope that’s not going to be the case.”

Prima’s net return on assets fell to 9 percent in the 12 months through March, from 9.7 percent a year earlier, and was the lowest among the nation’s four private pension fund managers, according to the country’s pension regulator.
Humala’s Proposals

Humala proposes raising royalty fees on mining and gas production and renegotiating contracts with foreign companies and trading partners including the U.S. After winning 32 percent in the first round of balloting April 10, Humala said he would consider a proposal drafted by former Finance Minister Pedro Pablo Kuczynski, who placed third, which urges respect for the constitution and the free-market system.

Humala has abandoned the anti-capitalist rhetoric that limited his appeal to Peru’s growing middle class and says his policies won’t jeopardize investment that drove the economy to average growth of 7.2 percent over the past five years.

His opponent in the second vote is Keiko Fujimori, a lawmaker and the daughter of jailed former President Alberto Fujimori, who trailed Humala with 24 percent of the vote in the first round. She has sought to distance herself from the corruption and human-rights abuses that brought down her father’s government.

Currency, CDS

Concern that Humala may win the election led to a 2 percent decline in the sol in the past month, the worst performance among 25 emerging-market currencies tracked by Bloomberg. The yield on the nation’s benchmark 7.84 percent sol-denominated bond due August 2020 rose to its highest in more than two years yesterday, according to prices compiled by Bloomberg.

The cost of protecting Peru’s debt against non-payment for five years with credit-default swaps rose to the highest since July 2009 this month.

Surging consumer demand and private investment in mines, power plants and infrastructure fueled 8.8 percent economic growth last year. Peru will post a region-beating 7.5 percent expansion this year, the International Monetary Fund said this month.

Peru’s four private pension fund managers invested more of their 84.3 billion soles in assets abroad last month as domestic securities declined. The funds had 29 percent of assets invested overseas last month, compared with 27 percent a month earlier and 22 percent in March last year, according to the regulator.

Overseas Investments

The central bank increased the limit on pension funds’ overseas investments four times last year to 30 percent of their assets from 22 percent in 2009 to help cool demand for soles as exports jumped 35 percent and central bank policy makers raised borrowing costs to cool inflation.

Lawmakers have yet to debate a government proposal to raise the limit to 50 percent.

Finance Minister Ismael Benavides said Oct. 27 the government favors the higher limit to stabilize the currency and allow the pension funds to buy the shares of companies in Chile and Colombia once the three countries integrate their stock markets.

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