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EMERGING MARKETS-Latam assets underperform EM peers, Brazil real leads fall

reuters.com · 06/10/2022 10:54
EMERGING MARKETS-Latam assets underperform EM peers, Brazil real leads fall

Brazil real eyes worst week in over two years

Red-hot U.S. inflation sparks dollar rally

Peru's sol afloat after rate hike

By Shreyashi Sanyal

- Latin American stocks and currencies fell on Friday, set to end the week with declines far greater than those if its emerging market peers, with Brazil's real leading losses on worries of lockdowns in China and red-hot inflation boosting the dollar.

The MSCI's index for Latin American stocks .MILA00000PUS fell over 3% by 1436 GMT, and eyed declines of 8%. Equities were headed for their sharpest weekly fall in more than 19 months. The broader emerging markets stocks index .MSCIEF shed 0.8% for the week.

Worries of slowing demand from major trading partner, China has hurt markets in Latin America, as Shanghai announced new COVID-19 lockdown measures this week. nL1N2XX03P

Rising inflationary pressures along with more aggressive central bank policies from developed world central bank have also pushed investors away from riskier assets such as those in emerging markets.

The MSCI's currencies index .MILA00000CUS dropped 1.4% on Friday and 3% for the week, marking their worst performance since late September 2020. A red-hot reading on U.S. consumer prices for the month of May, not only boosted the dollar =USD but also solidified bets of more tightening by the Federal Reserve. nL1N2XW25Z

"Some of the Latam countries are sensitive to tightening of financial conditions globally and given that we saw the stock market in the U.S. having a hard time in part because of the Fed, that's something that is also affecting the Latam region," said Jakob Christensen, chief analyst and head of EM research at Danske Bank.

Markets around the globe will be looking out for the U.S. Fed policy decision next week, where the central bank is expected to hike lending rates by 50 basis-points and continue with it.

Brazil's real BRBY, BRL= touched 5 to the dollar at one point during the day. The currency's 4.7% for the week, leading declines among Latam peers and marking its worst weekly decline in over two years.

Next week also marks Brazil's central bank move. A Reuters poll showed it is set to deliver a 50 basis points rate increase on Wednesday to finalize a long tightening cycle against unbridled inflation that is beginning to see some results. nL1N2XX0FQ

Brazilian stocks .BVSP fell 1.8%, with state-run oil company Petrobras PBR A down 3% after it received a court decision ordering it to halt talks with Petroreconcavo RECV3.SA and Eneva SA ENEVY for the sale of its Bahia-Terra cluster. nS0N2X5028

Brazil's government on Thursday night moved forward with its bid to privatize Eletrobras EBR, Latin America's largest utility, as it priced a share offering through which its stake in the company is set to be diluted. Shares of the company tumbled 5%. nL1N2XW1F7

Lower commodity prices also hurt other Latin American currencies. Chile's peso CLP= slipped 1.6% on lower copper prices, while falling oil prices hurt Colombia's peso COP=, which dropped 1.7%.

The Mexican peso MXN= fell 1.2%, while Peru's sol PEN= gained 0.1% as it was supported by an interest rate hike by its central bank overnight. nL1N2XW30F



Key Latin American stock indexes and currencies at 1436 GMT:


Stock indexes

Latest

Daily % change

MSCI Emerging Markets .MSCIEF

1052.57

-1.37

MSCI LatAm .MILA00000PUS

2238.01

-3.11

Brazil Bovespa .BVSP

105048.09

-1.91

Mexico IPC .MXX

48666.68

-1.27

Chile IPSA .SPIPSA

5151.30

-0.64

Argentina MerVal .MERV

87985.61

-0.995

Colombia COLCAP .COLCAP

1524.18

-0.17




Currencies

Latest

Daily % change

Brazil real BRBY

4.9999

-1.71

Mexico peso MXN=D2

19.9140

-1.29

Chile peso CLP=CL

838.3

-1.60

Colombia peso COP=

3907.1

-1.75

Peru sol PEN=PE

3.7401

0.09

Argentina peso (interbank) ARS=RASL

121.7800

-0.11

Argentina peso (parallel) ARSB=

206

0.97



(Reporting by Shreyashi Sanyal and Anisha Sircar in Bengaluru
Editing by Alistair Bell)

((Shreyashi.Sanyal@thomsonreuters.com; +1 646 223 8780; +91 961 144 3740; Twitter: https://twitter.com/s_shreyashi;))