• York Investment & Finance

Global Markets Overview: Latin America

Updated: Sep 11, 2020

From 13 to 27 July 2020

Latin American markets ended the week 1.7% higher as improving economic data increases risk appetite in the region.[i] Stocks rose on the promise of increased government spending and the economic outlook for the region now looks considerably brighter than the dismal 9.4% contraction in 2020 forecast by the IMF.[ii] Positive news regarding a potential vaccine brushed aside fears concerning the pandemic, despite the outbreak spiralling out of control in Latin America.

Argentine stocks have notably outperformed their peers as stocks closed 6% higher this week on the news of improving relations between the government and its creditors. This follows the new offer proposed to US Congress regarding the restructuring of US$65 billion in debt.[iii] Brazilian stocks went against the regional trend, as escalating Sino-US tensions and fears over surging COVID-19 cases soured what had been an upbeat week. Markets initially reacted positively to the growing prospect of an economic rebound as Brazil took steps to overhaul a byzantine tax system and with the news of the central bank hinting at further interest rate cuts. However, the Bovespa index slipped by over 2% on Friday to end the week lower as sentiment dampened amidst rising concerns that these latest setbacks could jeopardise the nation’s economic recovery.[iv]

The Brazilian energy sector continues to show strength despite oil prices remaining relatively flat of late. State-owned giants Petrobras saw its shares surge by a very impressive 30% in the past quarter, as the company profited from surging Chinese demand.[v] Although demand has waned slightly, market sentiment remained bullish following a growing appeal into the quality of Brazilian crude, which importers look favourably upon as the low-sulphur content will help them adhere to new maritime fuel emission laws. Future gains look to be driven by Brazil’s increasing volumes of exports to Asia, as investors keep a close watch on whether Brazil can challenge OPEC’s dominance in the market.

Telecom giants TIM and Telefonica Brasil came off earlier losses, trading 8% and 5% higher on Monday as they offered to acquire the mobile network of rival Brazilian carrier Oi Group.[vi] Investors shrugged off concerns regarding previous losses which arose from difficulties collecting payments, as lockdown measures forced restrictions on transactions predominantly done by cash. Plans to extend broadband coverage by 4.9 million in the next 5 years have lifted investor sentiment as a successful acquisition could provide a secure route into future profitability in a market that looks destined for long-term growth.[vii]

By Tom Ives - Analyst at York IFS Global Market Telegraph

This article was first published in University of York Investment and Finance Society's Global Market Telegraph (GMT) Edition 3.1 in late July 2020.

Reference list: [i] https://uk.finance.yahoo.com/quote/ALAT.MI/chart?p=ALAT.MI [ii] https://www.economist.com/finance-and-economics/2020/07/02/a-latin-american-economic-tragedy [iii] https://en.mercopress.com/2020/07/18/argentina-s-bill-to-restructure-public-debt-in-dollars-issued-under-local-law [iv] https://finance.yahoo.com/quote/%5EBVSP/ [v] https://finance.yahoo.com/quote/PBR?p=PBR [vi] https://www.nasdaq.com/articles/brazil-telecoms-shares-surge-after-tim-telefonica-and-america-movils-bid-for-oi-mobile [vii] https://www.globaldata.com/brazilian-telecom-operators-to-add-4-9-million-subscriptions-over-the-next-five-years-says-globaldata/

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