Peru Narrowly Avoids Frontier Markets Demotion

The iShares MSCI All Peru Capped ETF (NYSEArca: EPU) is higher by more than 6% over the past week and Peru’s retention of its emerging market status could be a big reason why the lone exchange traded fund tracking the South American nation is soaring.

Index provider MSCI had previously warned that Peru was in danger of losing its emerging markets status and being demoted to the frontier markets designation. However, earlier this month, MSCI confirmed it is keeping Peru in the emerging markets group. The index provider did say that risks remain to Peru’s retention of emerging markets status.

“Failure by the Peruvian authorities and the stock exchange to reverse the declining trend in liquidity … may lead to MSCI’s decision to reclassify the MSCI Peru Index to Frontier Markets in June 2016,” MSCI said in the statement.

“MSCI warned earlier in mid-August that Peru could be downgraded to frontier market status as only three securities from the country had met the size and liquidity requirements for emerging market status,” according to Emerging Equity.

Slack liquidity is one issue plaguing Peruvian stocks. “The average daily trading value on the Lima exchange fell to $6.1 million in June, the lowest since 2009,” Eduardo Thomson reports for Bloomberg, citing Credicorp data.