LIMA, Nov 2 (Reuters) - Peru’s stock exchange is optimistic it will avoid a downgrade by index provider MSCI Inc next year as at least two listed companies boost trading volume and start qualifying as “emerging market” securities, the bourse said on Monday.
Only three companies on Lima’s mining-dominated bourse now meet the requirements for MSCI emerging market securities, the minimum needed to remain in its emerging market category.
MSCI had considered downgrading the exchange to its higher-risk “frontier” grouping earlier this year, a move that the bourse had said would trigger up to $5 billion in outflows within months.
Christian Laub, the president of Lima’s stock exchange, said he expects food company Alicorp and holding company Intercorp Financial Services Inc to qualify as emerging market securities ahead of a new MSCI review in June 2016.
And there are several small-cap companies that could qualify in the near future as well, Laub told Reuters on the sidelines of an event hosted by the bourse.
MSCI opted to keep Peru in its emerging markets group in September, but warned it might still reclassify the bourse as a frontier market if liquidity does not start to recover.
It also said it would automatically downgrade Peru if it reclassifies Southern Copper Corp - one of the bourse’s three emerging market-grade companies - as a U.S. security.
Laub said he was optimistic that the bourse would be able to revert its liquidity slump, thanks in part to recently reduced restrictions on market makers and the elimination of a capital gains tax.
“We don’t have a lot of time,” Laub said. “But we don’t have to solve the entire problem by June. We just have to change the trend.”
Laub said the bourse expects companies to start hiring market makers to ramp up liquidity, helping to raise the number of emerging market-grade securities from the current three.
“We don’t have a buffer right now. What we have to do is to have a fourth company, a fifth company, a sixth company” that qualify as emerging market securities, Laub said.
Peru’s general and select indexes have dropped about 30 percent so far this year, hit by tumbling mineral prices and worries about the slowdown in China.
Aside from Southern Copper, holding company Credicorp Ltd and precious metals miner Buenaventura currently qualify as emerging market securities for MSCI on Lima’s bourse.
MSCI requires emerging market securities to have higher liquidity levels and experience more frequent trading than frontier market securities.
Reporting by Mitra Taj; Editing by Lisa Shumaker