Brazilian and Latin American stocks gained ground on friendly signals from the U.S. Federal Reserve that its rate tightening campaign may be over sooner rather than later. Optimism about local economies, such as in Brazil, also propped up LatAm markets in the first session of the year, Tuesday, January 3.
Brazil’s Bovespa Index jumped 1,033.31 points, or 3.08%. Mexico’s benchmark Bolsa Index gained 574.99 points, or 3.21%, while Argentina’s Merval Index added 46.33 points, 2.98%.
The main stock driver in the region hailed from the Northern hemisphere, when minutes of the U.S. Federal Open Market Committee’s December meeting on interest rates showed a majority of its members believe the central bank will only need to implement a few more rate hikes to contain inflation.
Most members believe that "the number of additional firming steps required probably would not be large," according to the minutes. Rising U.S. interest rates often redirect fund flows away from emerging markets such as Latin America.
The Brazilian market advanced, with blue chip stocks reportedly drawing a majority of foreign funds, according to news reports. Investors are optimistic about growth for the local economy in 2006, amid lower interest rates. Brazil’s central bank is meeting on January 18 and is expected to cut rates anew by at least 50 basis points.
In company news, mining firm Vale do Rio Doce, CVRD, saw some interest on news it is planning to buy back debt worth US$ 300 million, in a bid to reduce its debt exposure.
Also, grocer CBD climbed, with some analysts anticipating strong sales of durable consumer goods in 2006, due to consumer’s increased access to credit thanks to the company’s venture with bank Itaú.
On the downside, a major investment bank cut airline Gol to "neutral" from "buy," citing valuation, while upgrading Chile’s LAN Airlines to "buy" from "neutral," due to an improved earnings outlook.
Elsewhere, Mexican shares posted robust gains, in tandem with U.S. counterparts, following the release of the Fed’s encouraging minutes. Bullish sentiment about the local economy also helped.
Of note, a local brokerage expects many of the factors that supported the market in 2005, such as lower interest rates and stable economic conditions, to continue this year.
In research, an influential investment bank expects America Movil to outrun fixed line Telmex, but added that Mexican telecoms look relatively less attractive than Brazilian telecoms.
Separately, news services reported that the newly listed shares of the infrastructure and construction companies controlled by billionaire Carlos Slim found support on expectations that they will be added in February to the IPC stock index.
Meanwhile, in Argentina, stocks advanced, in line with regional counterparts, and as investors readjusted their holdings to match changes in weightings for some of the companies listed in the Merval.
Steel tube manufacturer Tenaris and power transporter Transener saw their weight increase, while banks’ prominence was revised lower. However, Banco Macro Bansur bounded, amid talk that it is better positioned than its peers, as it is preparing to list ADRs in New York.
Thomson Financial – www.thomsonfinancial.com