Stocks, Bonds & Inca Kola: A Guide to Investing in Peru
Sept, 02 2009
Expats living in Peru have a unique opportunity to see in action - and get involved in as investors - in one of the most dynamic stock markets in the world. As of late August 2009 the Bolsa de Valores de Lima (BVL), Peru’s national stock exchange, had risen in value by over one hundred percent. Given that figure one may be inclined to believe a bubble had formed and that dipping into the market at this time would not be wise. While this dictum would normally be true, it probably isn`t the case for the Lima bourse because the growth seen in the BVL in this and recent years past has been an organic growth led by investors not speculators. As an article in the business daily Gestion recently pointed out, there are only around 7,000 active securities investors out of a total 420,000 brokerage accounts in Peru. Compare that to the million plus brokerage accounts open in Canada and you can safely assume your average market participant in Peru is an investor and not a speculator. Add to this mix the strong macroeconomic growth Peru has seen over the past decade and most analysts would agree that Peru’s economic strength is now finally being represented in her exchange index. As the Peruvian economy continues to grow and commodities prices remain high due to BRIC (Brazil Russia India China) demand, the BVL should continue trending upwards.
So, how can an expat or non-resident get involved? Well, the answer varies according to an individual’s income, assets, age and marital status; but a diversified portfolio of dividend-paying blue chip stocks is always a safe choice, and for those with a longer risk horizon, investing in emerging BVL-listed companies built on solid fundamentals could prove to be a very profitable proposition. Keeping in mind that over sixty percent of the Bolsa’s daily exchange volume (shares traded) is composed of mining company shares, investors can nevertheless find a wide selection of other sector stocks that present attractive investment opportunities.
As an added bonus in Peru there are currently no taxes levied on stock gains. This will change in 2010 when a 5% tax comes into effect; however 5% pales in comparison to the 10 – 21.5% capital gains tax of the United States or Canada.
In Peru, non-residents can open brokerage accounts in the same manner as residents would and brokerage accounts can even be opened through email. No local bank account is required. There are about twenty brokerage firms in Peru (Sociedades Agente de Bolsa) including those belonging to the major banks and for the most part there are no minimum investments required. All brokerage transactions are supervised by the Peruvian Securities Commission and the average commission works out to about one to two percent of the total trade value (minimum commissions may apply).
Peru is stable nation which has been granted investment grades by the major rating houses. In fact, our BBB- investment grade ranks Peru above Brazil and just below Chile among the most financially stable countries in South America. For those expats looking to diversify their investment horizons Peru could indeed prove to be greener pastures.