Interview: Marco Antonio Zaldívar
How will the announcement of large-scale mining investments affect capital markets?
MARCO ANTONIO ZALDÍVAR: It is important to note that Peruvian capital markets are heavily reliant on external factors, with an emphasis on global metal prices. The overall volume of traded stocks in Lima can usually be correlated to the international price of copper. This is largely due to mining’s crucial role in the local economy, as it accounts for most of our exports and a significant share of GDP. The BVL is also closely linked to the mining sector because it is one of the few Latin American trading floors where investors can trade with mining company stocks. The high number of already announced and forecast investments will therefore undoubtedly have an effect on trade, as a majority of the mining firms leading this new funding cycle are traded on our stock exchange.
To what extent do capital markets and the banking system complement each other?
ZALDÍVAR: Unlike other countries, in Peru the capital and financial markets compete against each other. In the context of low global interest rates, banks were able to offer short- and long-term loans at attractive rates. In other economies, however, the US Federal Reserve’s recent rate hikes opened an opportunity for markets to provide long-term financing at more interesting rates. That was not the case with Peru’s highly concentrated banking system, which did not increase its average interest rates for short- and long-term loans that came with the Fed’s progressive termination of quantitative easing and the announcement of higher rates. This situation has permitted a noticeable liquidity accumulation in the system that should decrease the previous over-reliance on international markets and external factors.
Banks, however, play a very important role in our capital markets as the impact of retail investors is negligible. This is partially due to most banks’ preference for incentivising deposit and low-risk investment instruments inside their own structures, offering a limited investment portfolio to a small share of customers. Peru’s rigid banking laws, enacted in 1992 after the harsh hyperinflationary period in the 1980s, severely limit the system’s scope of action. Some 25 years later, a more universal investment approach, with banks incorporating investment, leasing, stockbroking and private pension services under the same roof, is still impossible.
What can Peru’s secondary market offer to small and medium-sized enterprises (SMEs)?
ZALDÍVAR: The Alternative Stock Exchange ( Mercado Alternativo de Valores, MAV) was designed for enterprises with a combined revenue of PEN300m ($90.8m) over two or three years. SMEs seek to raise funds on the MAV because traditional banks perceive them as too risky. Companies wishing to enter the MAV enjoy a series of benefits, such as a 50% reduction in all commission and issuances limited to one ratings agency instead of two.
Although the MAV has been active for several years now, only a handful of companies have listed, largely to raise short-term capital. In 2018 issuances reached a record-breaking $7m, compared to more moderate figures of around $1m in the past. The low-risk tendency of most investors – especially in secondary markets where collateral is lower and information less available – prevents long-term issuances from being traded at the MAV, and most participants have only traded one-year public offerings. Investors still seem unwilling to take additional risks by buying issuances that will mature in three or five years.
Peru is an open economy, and domestic players are able to seek financing and raise funds virtually anywhere in the world. Capital markets have a crucial role to play in enabling SMEs to seek funds outside of the large banking corporations or savings banks.
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