Peru Still Attractive As An Investment

Despite the recent Latin American Sell-Off, the region as a whole is still in decent economic shape.  Peru is a prime example of this.  In their most recent policy announcement, the Central Bank of Pery kept rates at 4.25%.  Here is how they described their economy

The Board of the Central Reserve Bank of Peru approved  to maintain the monetary policy reference rate at 4.25 percent.

This decision is based on that economic growth in the country is close to the economy’s potential level of growth, inflation expectations remain anchored within the target range, the rate of inflation has been affected by temporary factors on the side of supply, and international financial conditions are still uncertain, even though some positive signals have been observed in the developed economies.

Let's start with their GDP growth:

Their overall annual growth rate is printing between 4.6% and 6.9% over the last nine months.  We should be so lucky.

Unemployment is printing between 5.6% and 6.7% over the last 12 months -- which is below the US level.

And inflation is clearly under control.

 

The Peruvian market fell sharply during the late spring and summer, as the market sold-off in reaction to the announcement of the Fed's potential tapering.  However, prices broke out of their channel in early September, rallying through the shorter EMAs.  now prices are weakening a bit, probably to test lows.

Chile and Peru Keep Rates Steady

From the Chilean Central Bank:

In its monthly monetary policy meeting, the Board of the Central Bank of Chile decided to maintain the monetary policy interest rate at 5% (annual).

International financial conditions tightened, especially those facing emerging economies, mainly responding to signs of an earlier withdrawal of the monetary stimulus in the United States. Recent indicators for the U.S. economy are positive and point to a gradual recovery. The Eurozone continues in recession while growth forecasts for China have been revised downward, as have those for other emerging economies. The prices of foodstuffs and metals, including copper, receded in recent weeks, while fuel prices rose. The dollar showed a widespread appreciation in international markets.
 
Domestically, incoming information reveals an ongoing slowdown of output and demand, especially in investment. The labor market is still tight. Consumption has remained strong, but the evolution of credit conditions and confidence surveys suggest this variable will lose momentum. Headline inflation approached the tolerance range, as expected, while core measures remain close to 1% y-o-y. Inflation expectations over the policy horizon remain around the target.

From the Peruvian Central Bank:

1. The Board of the Central Reserve Bank of Peru approved to maintain the monetary policy reference rate at 4.25 percent.

This decision is based on the fact that the rate of inflation is within the target range in a context of economic growth in the country close to the economy’s potential level of growth amid international financial uncertainty.

The Board oversees the inflation forecasts and inflation determinants to consider future adjustments in monetary policy instruments.

2. Inflation in June recorded a rate of 0.26 percent due mainly to the rise in the prices of some food products and fuels. Inflation in the last 12 months rose from 2.46 percent in May to 2.77 percent in June. Core inflation showed a rate of 0.26 percent (3.38 percent in the last 12 months), and inflation excluding food and energy showed a rate of 0.16 percent (2.35 percent in the last 12 months).
 
Inflation is expected to converge to the center of the target range in the next months due to the improvement observed in the conditions of food supply, to a pace of growth of economic activity close to the economy’s level of potential output, and to inflation expectations anchored to the target range.

3. Current and advanced indicators of activity show that the growth of the Peruvian economy is close to its long-term sustainable level of growth, even though the indicators associated with the external market still show a weak performance that affects the prices and volumes of export products.

The Chilean ETF broke the strong support at the 58 price level in late May.   Since the the market has continued lower, bottoming on stronger volume in late June.  Currently the market is forming a symmetrical triangle.  While the MACD is rising, it's still in negative territory and the CMF has just turned positive.  However, the overall chart is still bearish and a move higher would have very strong upside resistance.

The weekly Peruvian chart shows that prices have been dropping since the beginning of the year and are no approaching a three year low.   The chart is extremely bearish: the downward trend has been in place for about half a year and we see strong bars printed in the sell-off. 

South American ETFs Are Selling Off

Consider the following weekly price charts:

The Chilean ETF has an uptrend connecting the mid-2012 and end of 2012 lows.  Prices broke that trend a few weeks ago and are now below the 200 week EMA.  Additionally, they are sitting at price support established in mid-2012.  Momentum and volume readings confirm the break-down.

The Mexican ETF actually broke trend earlier this year, but consolidated sideways between the 70 and 76 price level.  Prices have bee moving lower for the last few weeks, breaking price support established earlier this year.  Momentum is dropping and volume is flowing out of the market.

The Columbian ETF broke its uptrend earlier this year.   Over the last few weeks we've seen some volume spikes as the selling has accelerated.  Momentum is dropping and money is flowing out of the market.

Peru's ETF had a solid uptrend that lasted over a year and a half.  But prices moved lower about 6-7 weeks ago, printing strong bars lower.  Also note that momentum is declining and the CMF is negative.

Brazil has been trading at low levels for the last year because of a slowing economy.  However, prices have dropping sharply over the last few weeks, bringing momentum down and leading to a slightly negative CMF reading.