LIMA Peru's government should back policies that encourage private investment and build business confidence to help Peruvian stocks recover amid tumbling metals prices, said the head of Lima's stock exchange.
The right policies and signals will allow Peru's stock market .IGRA to ride a wave of surging domestic demand and growing confidence in the U.S. economy, said Christian Laub, the new president of Peru's stock market.
"If the government wants growth, it has to sustain business confidence," Laub told the Reuters Latin America Investment Summit late on Thursday.
"This is achieved through actions, attitudes and consistency - and this is not what we've had in recent months," he said.
President Ollanta Humala, a retired military officer who abandoned his former radical rhetoric to become president, came under fire in April for considering a purchase of some of the local assets of Spanish oil company Repsol (REP.MC).
Local business leaders and even some allies of the president interpreted the potential purchase by the state-run energy firm Petroperu as a prelude to a monopoly on energy production.
Humala has vowed to empower Petroperu to boost domestic oil and natural gas production that will bring cheap fuel to Peruvians and turn the Andean nation into a net energy exporter.
The government announced on May 2 that it was dropping the Repsol purchase, and Peru's stock market picked up 0.55 percent overnight.
Peru's main stock index, where mining companies weigh heavily, has fallen 20 percent so far this year. It was up 0.5 percent at 16,631 points on Friday.
Traders have linked the decline mainly to falling global prices for gold, silver and copper - traditional Peruvian exports. But they have said the perception of government interference in the economy has also hurt local stocks.
In 2012 Peru's stock market rose 5.9 percent as the local economy expanded 6.3 percent on strong domestic demand for everything from cement for new homes, to retail shops.
"The great engine of Peru's economic growth in recent years has been private investment," Laub said. "What we have to do is promote more investments, and these investments have to be private."
Peru's economy has expanded at some of the fastest rates in Latin America in recent years, but it slowed more than expected in the first quarter and the central bank is considering trimming its growth forecast for this year.
Laub said while the shares of mining firms have faired poorly on Peru's stock market, companies linked to domestic demand have done well.
"The picture might look bad, but the reality of what's going on in Peru is quite good," he said.
Laub said the stock market will do even better as the U.S. economy picks up, Europe pushes through its crisis, and China maintains growth.
"I think the U.S. economy is showing clear indications (of improving)," he said.
The merging of a unique equity market for Peru, Chile and Colombia, called MILA, will also strengthen Peruvian stocks, Laub said.
But he added that before MILA can really take off, taxes should be standardized across the three markets and Peru should reduce its stock market fees, which are now higher than in Chile and Colombia.
"We need to treat investors who can access the Colombian and Chilean stock markets equally," said Laub. "There is a very high correlation between business confidence and investment."
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(Writing by Mitra Taj; Editing by Terry Wade and Chris Reese)