What are capital markets and why are they an important investment opportunity in Peru?

Considering investing in Peru? Explore the capital markets and discover their potential for generating profits in the economy.

The capital market plays an important role in the financial system, as it allows people to invest in their future and be able to generate wealth. In this way, the invested capital can be used to, for example, buy your own home or save for your child's college education.

In this way, capital markets become crucial for companies or entrepreneurs to transform their ideas into real businesses or expansions of current ones. This process not only creates new jobs but also contributes significantly to the country's economic growth.

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FUEL TO IMPROVE PROFITABILITY

The Central Reserve Bank of Peru (BCR) describes the capital market as a place where financial instruments are issued and traded. It serves as an alternative to traditional bank financing, enabling companies to cut down on their funding expenses while offering investors the opportunity for higher returns on their investments.

However, typically, the main issuers are the government and private businesses, particularly those with a stronger financial standing. This strength is determined by their ability to handle potential losses based on the profits they expect to gain from an investment.

The key players among institutional investors in Peru include private Pension Fund Administrators (AFPs), mutual investment funds, and insurance companies.

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CAPITAL MARKETS IN PERU

Industrial engineer Juan Vidaurrazaga states that the Peruvian capital market predominantly deals in bonds and shares, with AFPs and mutual fund insurance companies being the major players. This indicates significant potential for market growth and development.

There is an important reason behind this. According to the specialist, in the particular case of the Lima Stock Exchange, most of the shares belong to mining companies. That is why the market follows the trends of investments in this sector. In short, when mineral prices rise, so do the shares, influencing other stocks in the market.

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POSITIVE SITUATION

The World Bank has analyzed the growth of the Peruvian economy from three key angles: maintaining stability in the economy, openness to trade, and benefiting from a favorable global atmosphere. The per capita income in Peru has seen a significant rise, jumping from USD 2,040 in 2002 to USD 7,126 in 2022. According to the World Bank, this growth is attributed to Peru's effective macroeconomic policies, which have led to reduced public debt, substantial international reserves, and a reliable Central Bank. Consequently, Peru's financial system is well-equipped with enough capital to withstand potential crises.

In this situation, the World Bank predicts that the Peruvian economy will recover significantly by the end of 2024, with a growth of 2.7 %, following a slight dip of 0.6 % in 2023. Regarding the Gross Domestic Product (GDP), the organization anticipates a rise of 2.4 % in 2025. Looking ahead, in the coming years, the yearly growth rate is projected to stabilize at 2.4 %, driven by exports from new mining ventures like the Quellaveco mine in Moquegua and the expansion of Toromocho in Junin.

There is no doubt that the recovery of the economy, as well as the optimal performance of private investment in 2024, would translate into greater dynamism in the local capital market.