Global sell-off takes toll on Latin America stocks, forex
Latin American stocks dropped on Tuesday, led by a 1.6 percent slide in Brazilian equities, swept up in a global sell-off sparked by concerns about Saudi Arabia’s diplomatic isolation, a brewing spat over Italy’s finances and fatigued U.S. corporate earnings.
MSCI’s index of Latin American stocks fell 2.5 percent along with a 2.6 percent drop in the broader emerging markets index, which was weighed down by Chinese stocks. Latin American currencies were 0.9 percent weaker.
“It’s all really about the equity market right now. We’re seeing a risk-off environment shaping up,” said Win Thin, global head of emerging market currency strategy at Brown Brothers Harriman.
“Yen is outperforming and so are U.S. treasuries, gold and Swiss franc. It’s the classic kind of risk-off,” Thin said.
Brazil’s main equity index was hurt by losses in all sectors. Iron ore miner Vale SA fell 3.8 percent.
The real weakened for the second session in seven as bullish momentum eroded ahead of Sunday’s presidential run-off election. Front-runner Jair Bolsonaro is expected to top Fernando Haddad of the Workers’ Party, polls show.
“I’ve been telling clients, Brazil may outperform but in asset terms it is going to be hard for the real to continue strengthening when the rest of the EM is under pressure,” said Thin.
“There is a kind of pricing perfection. The markets are a little too bulled up … markets prefer Bolsonaro but he is by no means a perfect candidate.” Mexican stocks traded down 1.4 percent. Their Colombian peers dropped 1.3 percent, hitting a one-week low.
Mexico’s peso weakened 0.2 percent, adding to losses recorded on Monday when U.S. President Donald Trump threatened to shut the U.S.-Mexico border in reaction to a U.S.-bound migrant caravan from Central America. Mexico’s economy shrank 0.1 percent in August from July.
Argentina’s peso weakened 1.3 percent, the most among Latin American currencies. Traders cited excess peso liquidity seeking safe-haven dollars.
Key Latin American stock indexes and currencies at 1414 GMT
Source: Reuters
