(Adds reaction from bourse chairman)
LIMA, Sept 30 (Reuters) - Index provider MSCI Inc opted on Wednesday to keep Peru’s bourse in its “emerging market” group but warned it might downgrade the stock exchange to a higher-risk “frontier” status in nine months if liquidity sinks further.
MSCI’s decision to hold off on a reclassification will likely boost Peru’s select and general stock indices when trading reopens on Thursday.
Peru had scrambled to ward off the change after MSCI proposed it in mid-August. The government introduced a capital gains tax exemption - effective Jan. 1 - and eased restrictions on market makers and automated trading.
Peru had pressed MSCI to hold off on making a decision for three years to give the new measures time to yield results.
But MSCI said it would monitor developments in the coming months and reassess a potential reclassification in its 2016 annual review.
“Failure by the Peruvian authorities and the stock exchange to reverse the declining trend in liquidity ... may lead to MSCI’s decision to reclassify the MSCI Peru Index to Frontier Markets in June 2016,” MSCI said in a statement.
The chairman of the bourse, Christian Laub, said the shorter time frame means Peru must work harder to ramp up liquidity.
“But we have a bit of time to show that all we’ve started is advancing,” Laub said by phone. “We should be super happy about this as a country and market.”
MSCI also said that a shift to “frontier market” would be automatically triggered at any point in time if the bourse lost any of its three emerging-market-grade securities, the minimum needed to remain in that category.
MSCI’s August announcement about a potential reclassification helped further drag down a market that has already been hit by falling mineral prices and China’s slowdown.
The select index has slipped 31 percent so far this year.
The bourse’s had warned that joining the frontier category would trigger $5 billion in outflows. (Reporting By Mitra Taj and Ursula Scollo; Editing by Christian Plumb and Tom Brown)