Peru's Election
Peruvian paper notes, Nuevos Soles currency from Peru.

No matter who prevails in yesterday’s presidential runoff in Peru, the big winners are the population as a whole and the foreign retail investor. The two leading contestants, Keiko Fujimori, the daughter of the disgraced former president, and Pedro Pablo Kuczynski, are both viewed as market-friendly and center-right politically. For the first time in many years there was no leftist candidate on the ballot.

There is a wide age gap between the two candidates, with Fujimori at 40 and Kuczynski at 77, but both come with their own baggage. The fear with Fujimori is that she will return the country to the days of her father’s rule and all the corruption that came with that. On the other hand, Kuczynski still has a U.S. passport, was a member of the World Bank, and has close ties to Wall Street.

For some, the Wall Street connection is viewed as a negative. Another difference could be in governing styles, with the concern that Fujimori would re-impose her father’s authoritarian governing style, though she has signed a pledge promising to respect human rights and fight corruption. Kuczynski has a very high favorability rating and as he is a newcomer on the scene, there really is no benchmark other than he is viewed as being a pragmatist.

 As far as investing is concerned, if you, like me, believe that commodities are on the edge of a bull market, then Peruvian stocks may be a good bet. The country has the second largest copper deposits, the fifth largest gold reserves, and is in the top five worldwide producers of lead and zinc. All these commodities have recently had good run-ups and may continue.

The iShares MSCI All Peru Capped ETF (EPU) has a year to date return of 48.49%. But stocks involved in the mining and processing of gold, zinc, and silver will be a better investment, such as Cia de Minas Buenaventura SAA (BVN) with a year to date return of a whopping 151%, or Hochschild Mining PLC (HOC:LN), up a dramatic 212% year to date.

For a little diversity an investor can take a look at Cementos Pacasmayo SAA (CPAC), a construction company that also sells quicklime for use in mining operations and is up 18.81% year to date. And lastly, Grana y Montero SAA (GRAM), a holding company involved in infrastructure and energy that is also up nicely year to date at 125% return.

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GDP growth in the first quarter of 2016 came in at 4.4% which is down slightly from the previous quarter; however, with the election over, I believe the economy is well positioned because of the rally in commodities.  I for one am a buyer, because Peru and South America are successfully turning back the pink tide and I believe that this will continue for many decades to come.

 Peter Kohli, CEO of emerging market specialist DMS Funds.

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