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Monthly Andean Strategy Update - Setting new market upsides for 2015

August 6, 2014 ( newswire) In July, the MILA 40 index increased by 2.8% (USD), led by Peru while Colombia and Chile were both negative for the month.

In Chile, we are introducing a 4,530 IPSA target for 2015YE, implying a potential upside of 15% from current levels. Decelerating GDP growth, moderating growth in corporate earnings, and political/regulatory noise stemming from the ongoing discussions in the senate are limiting an upward rerating in the local index (market trading within 1 standard deviation below its historical average). However we have a slightly positive view on the IPSA in the short term. Although volatility will remain until there is more visibility regarding the final design of the reform, and there is still some uncertainty regarding macro and corporate fundamentals for 2015, we believe Chile’s recent underperformance has already priced in these uncertainties and therefore we could expect a return to a slightly more positive momentum in the IPSA as political reforms are resolved.

In Colombia, we are updating our 2014YE Colcap target while introducing a new target for 2015YE. We see moderate room for upside (+5%) for the remainder of 2014 and a 13% upside (16% including dividends) for 2015. Our estimates are grounded in the expectation that the growth in the Colombian economy will remain robust (GDP expected to grow 5% in 2014 and 2015). This is consistent with the BanRep’s decision in July to raise the repo rate by a further 25bps followed by an upward revision in its GDP growth estimate range from 3%-5% to 4.2%-5.8%. Regarding sectors, our view remains constructive on the banking industry and names linked to local demand.

July was positive in Peru (the IGBVL rose by 1.22%), driven by a good performance of mining companies following a rally in the price of zinc (8% MoM, 24% YoY). The month started with the market digesting a worse-than-expected June GDP figure of 1.8% (3.1% consensus) and a Central bank’s benchmark rate reduction of 25 bps (to 3.75% from 4%). At the end of the month, the government launched a stimulus package aimed to raise internal demand through increases in state employees’ salaries and pensions. Our top pick stocks are Minsur owing to mid term higher production of tin, whose positive price trend may restart, and Graña y Montero due to possible new mining contracts to be granted in the 2H2014.

Credicorp Capital

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