Brazilian and Latin American stocks weakened on profit taking, this Monday, after Brazilian, Mexican and Argentine shares hit record levels last week. U.S. stocks were pressured in part by news that personal income fell 2.3% in January after rising 3.7% the prior month. Also, spending was flat in the period, following a 0.8% gain in December.
Brazil’s benchmark Bovespa Index fell 285.91 points, or 1.01%, while Mexico’s benchmark Bolsa Index ebbed 80.74 points, or 0.58%. Argentina’s Merval Index tumbled 41.70 points, or 2.61%.
Brazilian shares weakened due to profit taking after recent strong gains, amid signs of a heated U.S. economy and a subsequent jump in U.S. Treasury rates.
Traders said that following a higher start buyers were unsettled by news the U.S. Chicago Purchasing Managers Index rose to 62.7 in February from 62.4 the previous month, versus the expected decline to 60.0. The data produced a spike in 10-year U.S. Treasury note rates, inspiring fears of repercussions for Brazil.
On the research front, a major investment house reduced its “overweight” position on Brazil “meaningfully,” as the stock market looks set to be “flat from here to year end.”
Following recent record highs in Brazilian equities and greater inflows from “non-dedicated investors,” the investment house urged investors to “take some money of the table.”
Amid corporate news, Brazilian state oil company Petrobras stated Friday evening that its fourth-quarter net earnings reached 4.6 billion reais, up from 3.02 billion in the year-earlier period, driven by higher fuel prices and an appreciation of Brazil’s currency against the U.S. dollar.
Analysts had expected a profit between 4.139 billion and 4.772 billion reais. Also, Petrobras’ net operating revenue climbed to 28.692 billion reais from 23.952 billion reais. However, investors reacted cautiously to the news, selling the stock.
Following a series of identical deals with Asian steelmakers last week, CVRD reported that China’s largest steel maker, the Shanghai Baosteel Group, has agreed to pay 71.5% more for iron ore supplied this year.
Also, Banco Itaú unveiled plans to invest 240 million reais in a consumer credit joint venture with Brazilian retailer Lojas Americanas SA.
Elsewhere, Mexican equities succumbed to profit taking, following a record closing high for the domestic market’s key IPC index on Friday. After starting the day to the upside, Mexico’s market declined alongside weakness in U.S. shares.
Turning to research notes, a brokerage raised its target on Coca-Cola Femsa’s American Depositary Receipts to US$27 from US$22.50 while maintaining a “hold” recommendation on the shares based on “stronger-than-expected 2004 results and a stronger outlook for 2005.”
Also, the brokerage reiterated a “buy” rating on Femsa shares, noting that its US$70 price target “might prove conservative on the back of record results at Oxxo along with an improved domestic pricing outlook at Cerveza.”
Also, an analyst raised its year-end price target on shares of construction company ICA to 5.90 pesos and restated its “buy” recommendation on the stock, stemming from better-than-expected results.
The analyst commented, “We believe ICA has entered a phase of solid recovery and that 2005 will be the year we finally see clearly favorable results.” Last week, ICA posted fourth-quarter earnings of 256.5 million pesos, versus a year-earlier net loss of 132.6 million pesos.
Meanwhile, Argentine bourses tumbled, following record highs on Friday, the final day of the country’s record US$103 billion debt restructuring. Analysts commented that investors were concerned Argentina’s market does not have any more room to grow and that they could be unable to get out of local stocks.
While analysts expect continued selling over the next several days, Argentine equities could rebound once the government officially announces the acceptance rate in the six-week debt exchange.
Thomson Financial Corporate Group
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