Peruvian Sol's Got Soul, Economist Says
The Peruvian neuvo sol has room to rise if the government would just let it happen, says BofA Merrill Lynch's David Beker.
That there is strong growth in Latin America is old news. Investors have been piling into the Brazilian real and other liquid currencies for some time now. But David Beker, head of Latin American economics and fixed-income strategy at BofA Merrill Lynch Global Research, told me Peru's nuevo sol is worth a closer look.
Peru's economy expanded close to 9% last year, Beker estimated, driven mainly by domestic demand. Manufacturing growth was the highest in 16 years, and a market-friendly candidate is currently ahead in the polls as April elections approach. Beker is anticipating a 50-basis-point tightening this year and another 100 next year, but thinks that if growth stays strong, that could be moved earlier.
"When we estimate fair value for currencies, Peru's nuevo sol is one of the cheapest across Latin America," Beker said, estimating that fair value is around 2.61.
What could go wrong with this picture? For starters, it's not clear whether or when the Peruvian government will end its efforts to keep the sol from appreciating. That dollar-buying won't work forever, Beker says, but still. Also, the nuevo sol spot markets are very illiquid, so they are not for the fainthearted. The sol has been weaker over the last few days, in fact . But investors with a genuine appetite for risk and a willingness to wait would do well to take a peek at Peru.
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