LIMA STOCK EXCHANGE

In 2016, the Lima Stock Exchange was the best performer among the four markets that make up the Mercado Integrado Latinoamericano (MILA), an initiative designed to integrate the stock markets of the four South American nations that belong to the Pacific Alliance trade bloc (Chile, Colombia, Mexico, and Peru).

The most liquid shares traded in Lima advanced nearly 40%, according to the S&P/BVL Peru Select Index, outstanding growth compared to its neighbors which experienced significant if lesser gains over the course of the year.

The previous year began with oil and commodity prices such as copper—an important mineral for these economies—trading at reduced levels, and the situation went on to be complicated by a sudden interest rate surge after the Fed lifted its lending benchmark in late 2015. But as the year progressed, commodity prices recovered steadily, and the US central bank did not elect to raise interest rates again until one year later.

As a result, most of the 800 companies listed in MILA rose in value over that period. In the Lima stock exchange, firms registered dramatic growth in April after conservative Pedro Pablo Kuczynski was elected President and defeated the populist Keiko Fujimori, a candidate not loved by foreign investors.

In particular, copper prices improved by the end of the year after Donald Trump, the new US President, announced plans to approve a USD1 trillion investment plan for infrastructure. This electoral promise alone, yet to be confirmed, substantially boosted the prices of copper mining companies in Peru such as Cerro Verde and Minsur, which grew 26% and 66% respectively.

On the other hand, finance firms such as Credicorp and BBVA Continental increased by around 40%, as banking services are still gaining ground in a country in which the majority of the population remains unbanked or underbanked. “Consumer banking is very strong in Peru, especially in credit cards," stated Facundo Turconi, Country Manager of collaborative finance network Afluenta, in conversation with TBY.

The past year was also excellent for the Colombian and Chilean Stock Exchanges, whose main indexes rose by about 25%. In Colombia, finance companies were also among the leading performers, with Davivienda and Bancolombia expanding 40% and 25% each. The past 12 months were also positive for investors in food and beverage firm Nutresa and concrete manufacturer Grupo Argos. Both companies are originally Medellin-based but have begun expanding throughout Central America over the past five years, making several strategic acquisitions.

As for the Santiago Stock Exchange, some of the best performing assets were LATAM Airlines—a company which resulted from the LAN and TAM merger—which advanced by 70%, and selected firms in the retail sector such as Parque Arauco (+46%) and Falabella (+14%).

Even though the Mexican Stock Exchange experienced much lower growth than the rest of the MILA markets, its most important index, the IPC, still gained 12% during 2016. The development of the Mexican market was hindered by Trump's election. His comments regarding NAFTA and the ending of US involvement in the TPP could have a detrimental effect on its neighbor's economy.

In the two days following Trump's election, the Mexican Índice de Precios y Cotizaciones (IPC Index) lost 7%, as foreign investors reduced their exposure to Mexican stocks. The Mexican Stock Exchange represents almost half of MILA, which has a total market capitalization of USD800 billion.

The MILA market was created in 2011 by the Colombian, Chilean, and Peruvian stock exchanges. Mexico joined in 2014, creating the second largest market in Latin America after the Brazilian Bovespa.

Despite its huge size, traded volumes are still low according to experts, while legal integration among the four stock exchanges has been somewhat slow. “To start to get the ball rolling is tough, but once it starts it gets easier. Getting the initial phase moving is difficult, but we have passed through that phase," noted Christian Laub, General Manager of Credicorp Capital and President of the Lima Stock Exchange in a TBY interview. He also stressed that MILA will keep on growing and trading as long as the four countries in the Pacific Alliance continue to integrate their economies.