Investing in Peru – South America's Hidden Gem

Email

When investing in the emerging markets, you need to cast your net beyond the obvious candidates. Granted, China, Brazil and India have emerged to become very attractive investment stories (I don't trust Russia, the fourth and final "BRIC" economy).

But everyone else has heard of them, too, which is why their markets have been bid up very high in the past year. Their prospects remain excellent, but you're paying a lot for them.

From time to time, however, a country that has been off investors' radar screens has a few good years, and begins to creep onto them. In such countries, risk may be high, but values at least remain reasonable.

That's why it might be worth investing in Peru.

When U.S. investors look at the countries of Latin America, they do so with great suspicion – and with good reason.

Mexico has proved to be a sinkhole for U.S. money for two generations. Argentina hasn't been quite as costly for Americans – even with its recent retirement-fund debacle – but only because the Europeans dived in first. Venezuela has been a disaster and even Brazil has proved very disappointing.

Despite that history, Brazil last year proved just about the best place you could have placed your money. And Chile currently appears not only very attractive, but safe. After all, in an era of perpetually rising commodity prices, doesn't it make sense to invest in commodity-producing countries?

That brings us to Peru.

At first glance, Peru looks mired in the category of countries a U.S. investor should avoid at all costs. If three of the top factors to a market's success are "location, location, location," then Peru has a big strike against it, for it's in a bad neighborhood: Two of its neighbors are Bolivia and Ecuador, places where no sane person would invest a penny, given their awful current regimes.

One of Peru's more recent presidents, Alberto Fujimori, who served from 1990 to 2000, is now serving another term – this one a jail term … of 25 years. And quite frankly, the fact that his daughter, Keiko Fujimori, is currently leading in opinion polls for the April 2011 election doesn't add to one's confidence either. Either Fujimori was unjustly imprisoned – in which case the Peruvian justice system is a travesty (the view I incline to) – or he deserved what he got, in which case the Peruvian electorate is dangerously deluded. You can't have it both ways…

Nevertheless, Peru's economy has showed considerable strength in recent years, growing by around 9% annually in both 2007 and 2008 and even managing a little growth in 2009. You need to net out the somewhat-excessive annual population growth of 1.2% to get a per capita growth figure, however, and the country remains relatively poor, with per-capita gross domestic product (GDP) of $8,600 at purchasing power parity (PPP), well below Chile's $14,700 or Brazil's $10,200, for example.

The current president, Alan Garcia Perez, governed as a leftist maniac in the 1980s, but is a somewhat reformed character now, and has left alone most of the property-rights reforms – such as reliable land registry reforms that were instituted by Fujimori in his 1990s decade of rule. Foreign investment is officially welcomed, and corruption remains tolerable – in the 2009 Transparency International Corruption Perceptions Index, Peru ranked 75th out of 182 countries, level with Brazil.

Nevertheless, with commodities prices trending upward, Peru should continue to do well – its Top Four exports are copper, gold, zinc and crude oil, before you get to a group of agricultural products. The Economist team of forecasters predicts growth of just over 5% in 2010 and 2011, and that forecast may prove low if metals and energy prices continue strong. So, on balance, attractive investment opportunities in Peru should be considered.

There are a number of U.S. and Canadian mining companies with operations in Peru, such as Pan American Silver Corp. (Nasdaq: PAAS), which should be reasonably safe from expropriation even if metals prices continue to rise. There is also one interesting Peruvian-controlled miner listed on the New York Stock Exchange – Compania de Minas Buenaventura SA (NYSE ADR: BVN) – that benefits from very favorable operating costs in its gold operations at below $300 per ounce and trades at less than 14 times trailing earnings, a very reasonable rating in this sector.

Peru may be emerging as an investment destination; it certainly bears watching. But take care; with an unpredictable election next April and a strong leftist candidate in Ollanta Humala (who lost by only 5% in 2006) there is considerable political risk. Still, there is also upside risk – a victory by Keiko Fujimori would certainly clear up some of the country's ambiguities!

News and Related Story Links:

Join the conversation. Click here to jump to comments…

  1. Jon | April 8, 2010

    Do you think moving funds out of BRICs towards America and Europe is a smart move? Any idea of the timings? What do you think of South America's growth rate in the near future? And after America crawls out of the recession again?

    Stocks held, some of which are in China seem to have been doing well this month so far.

  2. Ian Harvey | April 8, 2010

    A very good article!
    Peru certainly bears watching and you are quite correct in regard to the political situation being the decider as to whether or not to invest there.
    I believe that the emerging markets are where the big profits can be made but caution is so necessary! Maybe a long-term view is required in many cases.

  3. carlos torres | April 8, 2010

    Thank you. Where do you suggest we should call to start investing in cooper or gold.
    Carlos

  4. Leinad Renrew | April 8, 2010

    Great article keep them coming on South American companies espically on the growth of travel, forwarding and transportation based industries. The Global Retired CEO Investment Group looks and invests in emerging, and inovative businesses of all kinds in the western hemisphere.

  5. Wilhelm Roedenbeck | April 8, 2010

    Glad to read that Peru is finally getting some recognition. There remains a lot to do in the social area, but things are improving day by day and extreme poverty has declined continiously over the last 20 years.

    While Fujimori stayed too long and made some mistakes, he did a lot more good that bad and should be pardoned by the next President.

    I also like that the Perivian economy has been handled very well by the last 3 Presidents. The banking system is very solid (more so than the US) and the economy is managed very well. I read recently that the Minister of Economy had indicated that he was worried because the fiscal deficit had been over 2.5% GDP in 2009 but that it would be brought back down to less than 1.5 % in 2 years.

    Not even Germany!

    Yes, politically Peru is not as stable as we would like, but for several years over 70% of the polled indicate they would never vote for Humala. So, even though 30% might get him to the second round, it is very unlikely he would get more than 30%.

    Finally, just having the opportunity to dine in Lima when you visit your investments justifies any risk! The food is amazing!

    kind regards

    Wilhelm Roedenbeck
    Miami

  6. Rafael Martin | April 8, 2010

    Interesting article, i was in peru last year and saw a different country than the one at 2000, i'm still not sure about what way to take yet but it would be very clear at 2 or 3 more years that's true, so let's keep this option in mind!
    Regards.
    Rafael.

  7. Jackson Davers | April 8, 2010

    Clearly this artcile has not been investigated enough.
    Investing in Peru is to unpredictable.
    The key issue is how frequently they change the laws.

    I can even point ot first hand knowledge of a group that just sunk $10 million into mining initail operatings involving dredging, and socially responsible dredging at that. They were just in the process of bringing in another $50 million to now build out an begin full time production. Now out of no where dredge mining, even mercury free responsioble minnig has been outlawed. This group is out about $4 in non-recoverables, and Peru is out an additonal $50 million in capitalization. They are going anywhere near Peru anymore.

    This is not about 1 bad experince. I have not had half the trouble in Chili, or Equador, as I have with potential opportunities in Peru.

  8. Raul | April 8, 2010

    Services, travel and tourism industries are a good option too,
    great potential in Peru…

    Raul
    Seattle-US
    Lima-Peru
    taipandes@gmail.com

  9. david | April 8, 2010

    Your report on Peru is a disaster. I know this region well.
    To discard Bolivia is a gross mistake, likewise Venezuela. Brasil is an awakening giant, with Petrobras leading the way. THIS is perhaps the best investment scenario.
    Chile is considered safe, but the new government demands "care".
    Argentina is the unpredictable one. The "old" remains from the dictatorship still abound, and cause constant problems (Thanks to the USA and UK)
    Back off………….these ill informed reports will cause many people to loose their shirts.

  10. NELLY TRATNER | April 8, 2010

    WHEN YOU'RE RIGHT YOU'RE RIGHT MR. ROEDENBECK!

  11. John | April 8, 2010

    For Peru, the only real political risk is social upheaval in the southern provinces or the amazon region, but this is still manageable. Ollanta Humala wont be elected because an overwhelming majority think he works for Hugo Chavez, and with that kind of reputation, there isn't much to be done in Peru. But please, dont invest in Peruvian shares..you will make our market expensive, generate a bubble and take us to those rollercoaster rides we like to avoid. Do invest by setting up some nice, environmentally friendly high added value businesses…those we do like in Peru (Mr. Davers, Peruvians actually hate the concept of dredge mining, the only reason that law wasn't there before was corrupt political pressure to keep it going… please do invest in Chile and Ecuador with that kind of industry).

    A bit baffled by the analysis on Fujimori? With all due respect, does anyone understand the concept of rule of law in the first world anymore? Or did all these last years of fighting terrorists generate such a degree of moral relativism that its been completely forgotten. The very guarantee that Peru has it's act together is that a corrupt and murderous ex-president like Fujimori is in jail (which is more than can be said of Chile, Brazil, Argentina, or even some first world cases I wont bother to mention by name…). This doesn't just apply to past Presidents, the same goes for a very corrupt "best friend" of the current President Alan Garcia who was caught red-handed a year ago, and who also happens to have a daughter in Congress, nicely locked in jail for bribing and a myriad of minor corruption crimes. Peru is no longer a country where "powerful friends" are more important than the law, it actually never was. It was more a victim of first world corruption in a constant play for natural resources or drug trade related issues. Fujimori and his CIA spy of a chief advisor, are among the most visible cases of this kind of corruption.

    Fujimori cannot be pardoned, because he broke the law in more ways than can be imagined, and is truly a criminal in every sense. Good economic policy and having defeated Shining Path is great and we are thankful for that, but it still cant excuse hundreds of millions siphoned off to secret accounts, nor sanction targeted murders nor kidnappings. This is fairly basic stuff. Its like having a great provider for a dad, that feeds you well, buys you toys, pays for a good education, but that happens to beat your mother. Just doesn't work, does it?

    On the other hand, the reason why his daughter is supported by many, is because when the corrupt father left Peru, and cowardly quit via a fax to Congress, Keiko, his daughter and first lady was left behind to answer for him. During such a nefarious ordeal, her behavior was exemplary. She not only proved to have twice the balls her father had, but she also collaborated with the law in all that she could. She will always be supported because she represents what peruvians like about themselves…and her father will die in jail because he represents what peruvians have had to bear for too long for all the wrong reasons.

    It baffles me that many analysts constantly cite pseudo-contradictory elements when defining Peru, there is nothing contradictory in Peru. The only contradiction is that someone telling people where to put their money, seem to have the same depth of understanding as a regular tabloid journalist.

    I have to agree with many here that are not so bullish, in the sense that Peru is not for the faint hearted. Peru has thousands of years of history behind it and a specific non-european culture behind it. Though our academic education is Western, our cultural base is fairly Inca, regardless skin color it gets to you. If you don't understand what that entails, it might not be the right stock market for you. That said, millionaires are made a day in Peru, this is something that goes back hundreds of years too. If you play by the "local" rules, and have fair game, it is likely that you will make more money than can be imagined. Just ask the Louis-Dreyfus family who started their billions in Peru, or the Grace family, or just recently Kallop who dunked in some 100 million in offshore oil and came out with 900 million in less than a decade, or Vale who put in barely nothing for some phosphate rights of which he has sold a percentage for half a billion (nice turn in 3 years), the list is fairly endless… Peru belongs to that pantheon of countries that have generated near mythological levels of wealth for european countries for centuries, both colonially and neo-colonially, now its just trying to generate some it for itself.

  12. Konus | April 9, 2010

    Peru number 2 in the world in copper production.
    And it is true, is surrounded by difficult neighbours, but survived and continue growing under the free market.

  13. JP | April 9, 2010

    The country is very dangerous for investments due to lack of social and legal stability. Please read some of the past history and look at how elections are fought.

    Peru is notorious for its embargoes of properties and businesses, specially those related to natural resources. Specialy dangerous are agriculture and mining. Laws are changed constantly to favor friends and win votes with populist measures.

    The worst case of legal abuse is the case of the "Agrarian Reform" coming back from the 70's. Almost all land and agricultural businesses were seized from their owners and never paid for. After 40 years of litigation no money has been paid so far. Despite the fact that owners today have a ruling in their favor from the Peruvian Constitutional Court asking the govrnment to pay at least the bonds it issued. Thes bonds are a fraction of the real value. The government is still using legal tricks not to pay back.

    Never invest in land or mining or industries that require intensive capital or labor or can be seen as signs of "foreingnes stealing our natural resources" kind of populism.

  14. JP | April 9, 2010

    IF ANY BODY FROM THE PERUVIAN GOVERMENT READS THIS, make sure you pay our Reforma Agraria bonos once and for all!!!

    You stole our businesses and our lands, and until they are paid for we will consider that you have stolen our land and in many cases our lives.

    You have something that you took from us and you havent paid! and is 40 years now

  15. TL | May 7, 2010

    My family invested in farming in excess of US6 million… the goverment took it all 40 years ago and paid less tha half in bonds that are yet to be paid. On 2001 the congress order the goverment to pay, the same in 2004 and 2006 and many times there after. More over the goverment has lost a number of lawsuits on this regard.

    Peru a poor country?… then why do they took this extra debt!

    Recently the goverment has declared that they can pay all the debts and still have money… so why don't they honor their debts?

    They could even pay with properties of land.. but they just sit on their legal system.

    So… do you want to invest in Peru?

    The law system is a joke!

    Go to China!

    • MLC | July 23, 2010

      How are u gonna pay debts if 64% of your poblation lives in extrem poverty?
      Ivestment causes growth if the country growths they'll be capable to pay off their debts.

      Read some book please

  16. Juan | May 24, 2010

    There are always winner and loser.

  17. Juan | May 24, 2010

    Winner and loser are usualy the result.

  18. Melissa | July 23, 2010

    I like to see articles like this one!
    I was actually doing some research because I'm looking forward to starting a real state company and I need US investors.

    I am Peruvian and real state has been the family business for many years, now I'm looking forward to expand the business due to the recent economic growth. Moreover, Peru recieves millions of tourists every year and luxury hotel are needed, especially in the Mancora and Punta Sal area. This are beaches located in the north of the country and they are really famous and visited! But still there's a lack of luxury to attrackt more tourist, just like cuzco does!

    My idea is to start by investing in some properties I have in lima, two building to be exact, and reinvest the money to build a luxury area in punta Sal. Land in this part of te country is cheap and free! Moreover, Wealthy locals are building houses farther and farther to every 5 years, it was recently predicted that in 5 years they will not go to 'asia' the Peruvian hamptons but they will go to tumbes or piura.

    I think this is a great investment! Peru has so much to offer but the problem is that we need investors to take advantage of our riches.

    I have team up with a German asset manager who's has an MBA from the most important managment French school.

    This a project, I think that building a paradise that will attrackt millions of tourist each year is a good point from where to start a real state international company.

    If interested, send me an email for further information.

    Thank you for your time

    • Greg | July 3, 2012

      Hi Melissa,
      Your opinion makes sense here. Let me know if we can team.
      I am into developing of your tourist potential as well. Been to your country 4 years ago and absolutely fell in love with your people and countryside.
      Send me your E-mail – how have you been doing since this article showed-up, ok ?

      Greg
      Thanks
      July2012

  19. Diego | December 6, 2010

    Peru' is not a safe country for investment, and those like that Roedenbeck are delusional ignorants thinking that Fujimori had done more "good" than bad. Should his daughter win the elections, which I doubt being a Peruvian myself, Peru will fall further into abyss of the caos. Her first thing will be to focus on pulling her criminal father out of the jail and clearing their name from proven crimes. The governing of the country will implode becaus ethat woman is even more incompetent than her criminal father. She has no qualities needed to govern a country and resources such as those of Peru.

    Investing in Peru is a very risky business. And given the levels of corruption, you are likely going to lose a lot and gain very little. Of course, there are safe investment opportunities, but you need to be very informed in order to fish those out.

    That is something we Peruvians find hard to do, so what makes you think that sa foreigners you will have better luck…? But, if you think you will, good luck to you.

  20. cesar | January 27, 2011

    itd be good to invest there.

  21. Wil | October 28, 2012

    By their fruits you will know them!
    All I know is that Peru's growth is on the high progresevily and steady, regardless of any bad reputation or the past. I'll say just take advantage of what the economy is reflecting NOW because in South America Peru will be notorious for their economy growth and in all aspects of it. One good key to notice is the freedom of religion and the freedom of speech, which sorprisingly all other countries in south america are not as KEYED. If this would not be so, then ask why is Japan, China, Europe, and Brazil, are so interested in PERU.

  22. Rene | December 23, 2012

    Hi Wil,
    I completely agree with you. I am living for the last 4 years in Lima and got an extremely nice bang for the buck by running a real estate company.

Leave a Reply

Your email address will not be published. Required fields are marked *


+ five = 6

Some HTML is OK

© 2014 Money Map Press. All Rights Reserved. Protected by copyright of the United States and international treaties. Any reproduction, copying, or redistribution (electronic or otherwise, including the world wide web), of content from this webpage, in whole or in part, is strictly prohibited without the express written permission of Money Morning. 16 W. Madison St. Baltimore, MD, 21201, Email: customerservice@MoneyMorning.com