Well-documented are the trials and tribulations experienced by
precious metal mining stocks and
over the past 12 to 18 months. Amid
, among other issues, the Market Vectors Gold Miners ETF (NYSE:
) has plunged more than 11 percent year-to-date.
Unfortunately, mining sector woes may be catching up with one
of 2012's top-performing Latin America ETFs, the iShares MSCI All
Peru Capped Index Fund (NYSE:
The iShares MSCI All Peru Capped Index Fund tracks
South America's fastest-growing economy
, one that is heavily dependent on the export of precious and
industrial metals and other raw materials.
Earlier this year, EPU was spotted making new highs, but the
fund has dropped 3.4 percent in the past month. EPU's month-long
slide is concerning on multiple levels, not the least of which is
the fact that the fund is the worst performer over that time of
the four largest country-specific ETFs tracking South American
Even the downtrodden iShares MSCI Brazil Index Fund (NYSE:
) has outpaced EPU in the past 30 days.
EPU is also declining after Peru reported December GDP growth
of 6.83 percent, up from 6.71 percent in November. That easily
topped the 6.2 percent analysts expected. Many analysts and banks
are forecasting Peruvian GDP growth of six percent this year.
Even if the World Bank estimate of Peruvian 2013 GDP growth of
5.8 percent proves accurate, the country
will still sport better growth than Argentina,
Brazil, Chile, Colombia and Mexico
Statistics like that add to the near-term concern over EPU's
retrenchment and perhaps highlight the fact the declines in
mining stocks are finally starting to take a bite out of an ETF
that last year proved impervious to that sector's problems.
Unlike the iShares MSCI Chile Investable Market Index Fund
), which is erroneously viewed as a commodities play despite a
materials only representing 14.4 percent of ECH's weight, EPU is
a commodities/materials ETF. The materials sector accounts for
49 percent of EPU's weight
Peru is a
top-five copper producer. The country is the
In 2011, Peru was the world's
sixth-largest gold producer
In particular, Peru's status as a major gold and silver
producer appears to be what has recently been ailing EPU. On
Monday, Compañía de Minas Buenaventura (NYSE:
), EPU's third-largest holding with an allocation of nearly 10
percent, plunged and it appears
volatility in that name is increasing
Add to that Peru's December 2012 trade surplus plunged to $679
million from $1.3 billion surplus a year earlier as exports fell
. Waning demand for copper and precious metals lead to the
With the mining sector being far from nirvana, EPU presents a
dichotomy to investors. With miners representing nearly half of
the ETF's weight, there is near-term risk. Still, there is a bull
case for EPU and Peru.
The aforementioned growth statistics fortify that assertion.
Peru's government balance sheet is sturdy. Jim O'Neill of Goldman
) and BRIC acronym fame, recently wrote in Barron's that along
with Chile and Colombia "there is great excitement and change"
The easy way of looking at EPU at the moment is to wait and
see if it holds support at $46. If it does not, $43 is likely the
next stop on the way down and that could be a compelling entry
point for prescient investors.
For more on Peru, click
(c) 2013 Benzinga.com. Benzinga does not provide investment
advice. All rights reserved.
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