Finally, some good news for Latin America exchange traded funds. The iShares MSCI All Peru Capped ETF (NYSEArca: EPU) surged 4.6% last Friday after the central bank there raised interest rates. Rising precious metals prices are also contributing to EPU’s recent bullishness.
EPU is reflective of Peru’s status as a major miner of gold, silver and copper. The ETF devotes 46.4% of its weight to the materials sector and another 30.1% to financial services stocks. No other sector commands more than 8.8% of the ETF’s weight. [Peru ETF Looks for More Upside]
“Peru’s central bank hiked by 25 basis points to 4.25%, marking the third consecutive monthly increase. With electricity tariffs contributing to a four-year high in the inflation rate to 4.6% year over year in January, from 4.4% in December,” report Dimitra DeFotis for Barron’s.
EPU’s bullishness arrives just months after Peru was teetering on the brink of a demotion to frontier markets status.
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.
“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.
“We expect inflation to start easing in the second quarter, but we acknowledge that the risk is that it remains higher than we expect. The apparent rise in inflation expectations is a concern and the depreciation of the Peruvian sol, which has fallen by a further 3% against the dollar since the beginning of the year, will add to already high price pressures in the economy. What’s more, the economic recovery appears to be gathering steam. Accordingly, while we had previously expected just one more 25 basis point hike in rates this year, we now expect 75 basis point of hikes, taking the policy rate to 5%,” according to a Capital Economics posted by Barron’s.
iShares MSCI All Peru Capped ETF
