• York Investment & Finance

Global Markets Overview: Latin America

By Tom Ives, Analyst at the York IFS Global Market Telegraph

Latin American equities have made strong gains this week following rising commodity prices and dovish comments from US policy makers; the MSCI Latin America index subsequently rose by 4% this week to close at its highest level in almost a month [1]. Despite the ongoing pandemic to devastating the region, investors shrugged off concerns surrounding the virus as stocks rose on the promise of a global recovery. Admittedly, the outlook has considerably brightened as improving economic data continues to flow in from most regions across the globe. Regional equities look set to benefit further from inflows of foreign investment fuelled by further policy support expected from Washington. The Brazilian Ibovespa index edged lower in choppy trading this week as investors weighed positive manufacturing data against surging public debt. The index started the month on a positive note following news that national manufacturing expanded at a record rate during August. This recent optimism was overshadowed, however, by the announcement that public sector debt rose to a record high of 87% of GDP [2]. The Mexican IPC index fell by 1.4% to reverse earlier gains as investors wagered on central bank contractionary measures after annual inflation rose above expectations to 4% [3].

Chilean stocks have retreated further as the IPSA index slipped by 3% this week to its lowest in 2 months [4]. Copper prices rose to reach a 2-year high to help the index recover some ground following steep losses in previous sessions. However, the commodity’s rebound was unable to alleviate concerns about weak manufacturing data, with investor sentiment dampening on the news that national production fell by 7.2% in July [5]. The Brazilian material sector has continued to show strength in recent weeks, tracking higher iron ore prices which have recently reached US$125 per tonne. Strong global demand has sustained the commodity’s recovery from a record low US$80 in March as worldwide stimulus measures have placed an upward pressure on prices. Stocks of Brazil’s major producers Rio Tinto and Vale have risen by 2.6% and 0.7% respectively at the prospect of another strong month of iron ore imports from China which looks set to drive future gains [6].

Declining oil prices resulted in most regional energy stocks extending their recent declines as the dollar strengthened. The Mexican state-owned giant Pemex has been dominating the news of late, as the government has come under criticism for not changing its stance towards climate change like its global counterparts. Its major rivals - namely BP, Royal Dutch Shell, and Repsol - have all implemented strategies to significantly lower their carbon emissions yet President Lopez-Obrador has instead focused efforts towards increased oil exploration from the new Dos Bocas refinery. With the President keen to increase oil production, investors will keep an eye on whether his efforts can reinvigorate an economy headed for recession.

By Tom Ives, Analyst at the York IFS Global Market Telegraph

This article was first published in University of York Investment and Finance Society's Global Market Telegraph (GMT) Edition 6 in early September 2020.

Reference list:

[1] https://www.marketwatch.com/investing/index/892000?countrycode=xx

[2] https://www.itau.com.br/itaubba-en/economic-analysis/publications/macro-brazil/primary-deficit-of-brl-811-billion-in-july

[3] https://www.focus-economics.com/countries/mexico/news/inflation/inflation-increases-for-third-successive-month-in-july

[4] https://www.bloomberg.com/quote/IPSA:IND

[5] https://chileeconomico.net/2020/09/01/chilean-manufacturing-decreased-by-7-2-in-july/

[6] https://uk.finance.yahoo.com/quote/RIO.L/


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