Dear Shareholders,

It is a pleasure to share with all of you this summary of the most relevant management endeavors, projects and initiatives in which Bolsa de Valores de Lima has been involved throughout 2017, in addition to showing the company’s results during the subject matter year.

It is a pleasure to share with all of you this summary of the most relevant management endeavors, projects and initiatives in which Bolsa de Valores de Lima has been involved throughout 2017, in addition to showing the company’s results during the subject matter year.
In this endeavor, I will start by highlighting the economic, national and international context surrounding the behavior of the stock market over the past year. At the national level, our economy was marred by two major occurrences; one was the presence of the “El Niño” phenomenon, which inflicted great damages to Peru’s North Coast; and the other: news of corruption to a great extent associated with the Odebrecht construction company.

As a result, our economy posted a moderate 2.5% annual growth, based on primary activities, with the highpoints being fisheries (4.7%) and metal mining (4.2%). On the other hand, in spite of the “El Niño” phenomenon’s impact, average annual inflation was 2.8%.
At the international level, the world economy continued to strengthen itself throughout the year – with encouraging results. Reportedly, Europe grew by 2.4%, with Spain (+ 3.1%) and Germany (+ 2.5%) at the top of the standings. Meanwhile, there had been fears of an abrupt slowdown in the Chinese economy since its 2016 GDP had revealed its lowest dynamism in the last 25 years (+ 6.7%), but they have now faded, as the various fiscal and monetary stimulus measures implemented by the Chinese government have enabled stable growth along with a construction boom and global demand for its exports.

The American economy benefited from the positive expectations given the tax measures proposed by President Donald Trump, as well as by the maintenance of an “accommodating” monetary policy on the part of the Federal Reserve. During 2017, the US Central Bank hiked its benchmark rate three times (in March, June and December), and they were appropriately assimilated by the market.

Marco Antonio Zaldivar

Taking the above into account, I would like to highlight that in 2017, the Peruvian Securities Market continued with the liquidity recovery process started in 2016, ending up with a significant increase in the number of trades and in the amount traded, in terms of both regular and special trades.

With respect to prices and yields, the main S&P/BVL indices reported positive returns, way higher than those obtained in recent years. Thus, the S&P/BVL Peru Select and the Peru General indices closed the year with 27% and 28% annual returns, respectively. In the case of the Lima 25 index, the gain was even greater (30%), while the Good Corporate Governance (IBGC) yielded 22% for the relevant stocks. With this result, the Peru Select index has generated a cumulative return of 108% in the past two years (2016-2017).

An important fact has been Peru’s consolidation as an Emerging Market. This is both an incentive and recognition of the hard work we have been doing as a market with the main global index providers (MSCI and FTSE). During 2017, the MSCI included two Class B stocks into the “Small Cap” segment: Volcan Compañía Minera and the Graña y Montero ADR (listed in the New York Stock Exchange – NYSE). FTSE did likewise with Volcan Compañía Minera.

Thanks to the Market Maker stocks, which were 10 in number in 2017, better price fixing has been achieved; and therefore, a greater liquidity level. Market Maker stocks are 85% more liquid than the rest. In addition, automated trading managed to exceed a 20% share in arbitrage trading securities, such as ADRs. Currently almost 40% of the volume of the most liquid stocks benefit from these mechanisms.

It should be noted with respect to the Market Maker issue, that BVL itself has also hired these services for its “Class A stock”, having contributed not only to better price fixing in its own case, but also to its incorporation into the referential values rate (Table 2) and to be able to access the tax benefits offered by the market.

I am also pleased to mention that in 2017, the Recognition of Good Corporate Governance Practices (BGC) accomplished its tenth edition. We are proud of this and it encourages us to continue fostering a culture of good practices within the companies listed in the stock exchange. Ferreycorp was recognized with “La Llave” [“the BVL Key”], the highest award, which is given to the company with best practices in the market, while Scotiabank was recognized with “La Voz del Mercado” [“The Voice of the Market”]. In turn, Credicorp, Buenaventura, Pacasmayo, Alicorp, Scotiabank and BBVA Continental were also recognized and included in the SP/BVL IBGC index.

Furthermore, in terms of Global Corporate Sustainability (GCS), which refers to environment care, social responsibility and corporate governance, the BVL has been promoting a series of initiatives aimed at the market, while internally adopting others to complement the progress made on this matter. Thus, for the first time, in 2017, the BVL measured its carbon footprint in order to encourage, by example, a culture of awareness about the environment within the business sector. This initiative was complemented by the promotion of certain provisions issued by the Superintendency of the Securities Market (SMV) and the promotion of the Responsible Investment Program (PIR), which Bolsa de Valores de Lima forms part of.

Thus, among others, the listed companies began publishing further information about their sustainable management (Environment, Social and Corporate Governance – ESG), a fact which is increasingly valued and significant for global investors. The aim of the GCS and ESG initiatives is to achieve better companies, better returns, and lower risk. Peru needs 21st Century companies.

In addition, as in previous years, I would like to share with you some of the issues which have formed part of our work agenda in 2017:

  • Greater Presence of Tradable Invoices: This product’s results have been quite encouraging in 2017. Thus, in just over 18 months, CAVALI has already registered almost 110,000 tradable invoices, with an average of 9,000 invoices per month. The tradable invoices amount totaled S/ 4.445 billion at the end of last year. This process has been promoted by PRODUCE and other stakeholders, and adopted by commercial banks, investment funds and stock brokerage firms, among others.
  • Promotion of the Development of FIBRA and FIRBI: throughout last year, the regulations governing these instruments were fine-tuned to ensure their proper and efficient operation. In addition, important promotional work was carried out to disseminate the instruments’ advantages. Currently, the expectation is for the first FIRBI and FIBRA to be listed in the coming months.
  • Modernization of the Securities Deposit System: Continuing with the on-going modernization process, the continuous settlement cycle was adopted not only throughout the day, but in addition, a new settlement standard was adopted, and it meant going from three days to two days for the delivery of securities. Accordingly, Peru’s market is now more robust and in line with global practices.
  • Capital Repatriation: Important work was carried out to diffuse the advantages of the capital repatriation program promoted by government, trading more than US$ 120 million in foreign securities in 2017.

Moreover, I would like to emphasize that for the fifth consecutive year, the inPERU Association, under the leadership of the BVL, continued attracting investments to our country; thus, the 11th North American Road Show and the 12th European Road Show took place in the months of April and October, respectively. Again, these events exceeded the expectations of the Peruvian delegation, which highlighted the broad interest of foreign investors in Peru.

In summary, during the year 2017, we continued to make progress in various initiatives, maintaining our commitment to all stakeholders in the capital market to offer new products and services, and to press on with the necessary reforms that will allow us to have an increasingly diverse, liquid and more in-depth market.

Finally, I would like to end this report by thanking the shareholders for renewing their confidence in us every year. Likewise, I thank the members of our Board of Directors, the General Manager; and of course, each and every one of our employees for being an important part of our organization.