Despite Bullish Break In IGBVL, Fundamentals Advise Medium-Term Caution
BMI View: Despite favourable technical signals which may portend further near-term gains for Peru's IGBVL benchmark equity index, we remain cautious regarding the medium-term outlook for the bourse, given our dim outlook for the price of both base and precious metals. Nevertheless, we reiterate that opportunities still exist for selective investors, particularly in defensive stocks such as utilities and consumer staples.
Peru's IGBVL benchmark equity index may be poised for limited near-term gains, but we remain cautious with regard to the index over the longer term, given the poor fundamental dynamics affecting the mining sector, which comprises over half of the bourse. This dim outlook is based on global dynamics which expected to adversely affect the price of key Peruvian exports, including the slowdown and rebalancing of the Chinese economy, as well as the normalisation of monetary policy in the US.
In line with our expectations, over most of the past several weeks the IGBVL index has fallen, with the overall market falling 9.6% between our last update on November 8 and recent lows of 14,650 on December 6. Over the past week, however, the bourse has bounced off technical support and broken through resistance, signalling possible further near-term gains. Furthermore, valuations for key mining firms still look cheap on a historical basis.
|Bullish Break Suggests Near-Term Gains, But Medium Term Outlook Still Dim|
|Peru - IGBVL Index|