Global Markets Overview: Latin America
Updated: Sep 11, 2020
From 27 July to 10 August 2020
Latin American stocks have retreated from strong gains in July, as the MSCI Latin American Index ended the week 3% lower. Surging Covid-19 cases have dampened risk appetite despite the US dollar sliding to two-year lows. A weak dollar usually raises the appeal of Latin American assets, but escalating Sino-US tensions and rising debt levels have knocked momentum out of the region’s stock markets. Brazilian stocks led the falls despite promising economic data, as the Bovespa Index edged lower for a fourth consecutive session. The Index was pulled down by Itaú after the major Brazilian bank reported a 40% fall in their quarterly profit. However, optimism could be on the rise following the news of another interest rate cut to a new record-low of 2% and further successful developments in the reformation of their tax system. Argentina bucked the regional trend, as the S&P Merval Index surged by 7% on Monday and continued its upward trajectory following news of a deal with three creditors over the restructuring of debt. The positive news was a much-needed boost to Argentina’s bond market following the downgrades issued by all the three major credit-rating agencies.
Brazilian energy stocks have had mixed fortunes this week, as investors weighed rising crude prices against the worrying backdrop of the Sino-US conflict. Petrobras shares edged higher in choppy trade this week, as the government-owned firm rebounded by 6% tracking higher crude prices. The firm managed to recover from previous declines as it shook off an early stumble following a very downbeat earnings report. Despite Brent Crude prices recovering to March levels now at US$45 p/b and Brazil’s growing market share, the future outlook of Brazil’s energy sector still looks uncertain as tensions between China and the US look to stall a global recovery and put strain on global demand.
Brazilian telecoms have erased earlier gains after investors have grown nervous at Huawei’s involvement in the construction of the nation’s 5G network. Huawei’s role in supplying equipment has been a large source of contention in the US, with the consequent mounting political pressure leading to all firms ending the week lower after the US ambassador warned “there would be consequences” for any Huawei deals. Despite this, a few major Brazilian telecommunication companies Telefónica Brazil and TIM Participacoes surged on Monday on the news of a revised joint bid to acquire mobile assets from rival Oi SA as the operators look to capitalise upon rising internet penetration in Brazil.
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 4.1 in early August 2020.
Reference List:  https://www.marketwatch.com/investing/index/892000?countrycode=xx  https://www.nasdaq.com/articles/brazils-itau-sees-profit-plunge-40-as-loan-provisions-soar-2020-08-03-0  https://www.marketwatch.com/investing/index/spmerval?countrycode=ar  https://finance.yahoo.com/quote/PBR?p=PBR Interested in writing for us? Check out the 'Opportunities' Tab!