The Central Bank of Peru announced last week that it will
probably
raise the limit on pension fund investments in
foreign securities
by the end of the year. Funds have approached the current limit
of 30% on roughly $35 billion in assets as strong economic growth
and regional integration increased assets.
-
The limit was increased four times in 2010 and the Central
Bank was given authorization last year to increase the limit to
50%.
The story, in itself is not so dramatic but follows on the
heals of increased foreign investment limits on pension funds in
Chile
and
Colombia
over the last couple of years. Chile's pension fund is almost
four times the size of Peru's with foreign investments of $49.1
billion on $134.9 billion.
The prime beneficiary of these increased pension investments
could be the equity markets within the Andean region. The three
countries integrated their markets with cross-trading through
listed brokers last year to better compete against larger
exchanges like Brazil and Mexico. The combined market
capitalization has increased by 10.17% over the six months to
June of this year to $660 billion. While trading volume has been
disappointing since the integration, most expect the
liberalization of pension investments to be a major factor for
the exchange and listed shares.
Strong Names from the Region
Despite the recent weakness in commodity prices, the region
continues to be a standout for economic growth and fiscal
stability. Companies that will benefit from the rise of a new
middle class and domestic consumption should perform well over
the long-term.
Cencosud (
CNCO
,
quote
), one of the region's largest retailers, began trading in New
York this year but are down slightly from their issue at $16.25
per share. Still, the future is bright for the company with a
diversified mix of supermarkets, home improvement, shopping
centers and department stores in Argentina, Brazil, Colombia,
Chile and Peru. Fiscal year revenues have grown over an
annualized pace of 25% over the past two years and management is
planning on an increase of at least 15% this year.
The Global X FTSE Andean 40 (
AND
,
quote
) was launched February 2011 and invests in the forty most liquid
stocks in the integrated market across Chile, Colombia and Peru.
Sector exposure mimics the integrated exchange closely with:
materials (26.4%), financials (24.3%), consumer goods (12.6%),
utilities (12.4%), energy (12.0%), and industrials (10.2%).
While Colombian ADRs continue to be limited to a few names,
the Global X FTSE Colombia 20 (
GXG
,
quote
) continues to be a diversified bet on the general market. The
fund trades for about 15 times trailing earnings and pays a 1.0%
yield.
