iShares Peru EPU ETF

Brian Hicks

Updated January 11, 2010

Some of my favorite economic indicators are delicious.

The Economist has its Big Mac Index, which shows price distortions in places like China or Norway based on the cost of the same beef, bun, and special sauce.

For Peru, my destination this week on a multi-industry research junket, I’m thinking about avocados. I take great pleasure in taking advantage of cheap tropical produce in South America. Like in Chile, where the locals slather guacamole, or palta, on hot dogs and hamburgers.

Peru, for its part, is advancing its avocado exports deeper into the U.S. market, and both sides of that tasty trade will benefit. The Department of Agriculture ruled on January 4 that Peruvian avocado farmers will be able to ship as much as 19,000 metric tons of Hass avocados to the States every year. Prices for the fruit in American aisles could drop by 6%, adding layers to domestic dips while padding the incomes of thousands of farmers in the shadow of the Andes.

Of course, raw numbers can be appetizing too — especially when you get a whiff of Peru’s 9.8% increase in gross domestic product in 2008 and expected region-leading growth in 2010! 2009’s GDP numbers only moderated to around 6% year-on-year, because Lima financiers steered clear of the derivatives crisis while it brewed.

Peru’s Pole Position for Global Growth

Peru’s position on the Pacific Rim has for centuries made it a key port for Asian fishermen and traders who want access to Latin American markets. These days, hungry China‘s resource appetite on one side is nearly balanced by bullish Brazil on the other…

A giant new highway bridging the Pacific coast and the country’s eastern border with Brazil will make Peru a transit market worth salivating over. That road alone may add a full percentage point to Peru’s GDP, according to a recent report in the Christian Science Monitor.

The truth is that Peru’s location is incredible in terms of both international and internal economics. Peru has a system of microclimates that can jar a person’s system with precipitous drops in temperature and altitude, while benefiting businesses that want a variety of natural resources within easy reach.

In a few days, I’ll be meeting with local and international entrepreneurs, as well as government officials who have helped usher Peru through periods of serious political tribulations to today’s rising prosperity. All these people are part of a puzzle that investors need to see fully in order to maximize the profit potential that Peru presents.

So where can you invest in Peru?

Let’s start with the whole menu: a U.S.-traded Peru ETF!

Play Peru Easily with this Exchange-Traded Fund

The iShares MSCI All Peru Capped Index Fund ETF (NYSE: EPU) captures a cross-section of the industries and companies that already have deep roots in one of Latin America’s sleeper emerging market sensations of 2009-2010.

EPU beat its Chilean counterpart (NYSE: ECH) by about 13% in 2009, and that’s music to Peruvians’ ears. You see, Peru and Chile are locked in a border dispute and Peru recently arrested one of its own air force officers who was suspected of spying for Chile.

The two countries even clash over pisco — a sweet grape liquor popular straight down the Andes — the origin of which is a topic of hot debate.

As far as ETFs go, the flavor you savor may have more to do with the kind of stocks you prefer than which flag you’d like to see on a liquor bottle.

EPU, the Peruvian ETF, is far more heavily weighted toward mining companies like Buanaventura Mining Co. and Southern Copper (NYSE: PCU). Chile, though it’s the top copper producer in the world, has its national metal industry controlled primarily by the government, which pushes resource wealth into pension funds and national savings.

International investors in Peru can do more with their money than they can in Chile to tap the commodity hunger of mega-builders like China, India, and Dubai.

So we see that you can take advantage of publicly-traded miners in Peru. But EPU also gives you access to the financial institutions that are helping to link Peru’s growth from government-led investment campaigns like ProInversiones (which I will detail during my trip), to the small-to-medium-sized businesses that line Lima’s streets.

Credicorp (NYSE: BAP), EPU’s top banking component and itself an ADR stock, rose by 57% over the past year. With that total, it walloped the Financial Select Sector SPDR (NYSE: XLF) while showing that emerging market financial institutions are not too hot to touch.

Peru’s national finances are on the up-and-up, too.

The country just completed the trifecta of "investment-grade" ratings upgrades from Moody’s, Fitch, and S&P. Investors are buzzing that Peru is a country with resource wealth on par with many African countries, but with only a fraction of the governance and corruption problems of the continent just across the South Atlantic.

When it comes down to value, Peru also beats Chile on its ETF’s price-to-earnings ratio. EPU is a full 5 points lower than ECH, which trades at more than 22 times earnings.

If you want more for your money, Peru is the place.

I’ve got a full docket of meetings and site visits that will bring me up to speed on everything from mining projects to large-scale renewable energy efforts across Peru. China comes into play there, too; the Chinese clean energy market is expanding rapidly, and entrepreneurs in the Middle Kingdom are looking for inroads in developing economies like Peru.

And I’m looking forward to delivering the latest information that will lead you to superior returns while most investors continue to snooze on this amazingly dynamic emerging economy.


Sam Hopkins
Sam Hopkins
International Editor

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