By Carla Mozee
Equities across most of Latin America fell Monday, opening the
week hurt by persistent fears about debt troubles in the euro
zone.
But the major indexes in the region moved off session lows as
U.S. stocks late in the session rebounded from sharp losses and
posted modest gains. The S&P 500 Index (SPX) rose 0.1% to 1,137
and the Dow Jones Industrial Average (DJI) picked up 6 points to
10,626.
Brazil's Bovespa finished down 0.9% to 62,866, pulling the index
further into negative territory for the year for a loss of more
than 8%. At the same time last year, the index tracking Latin
America's largest stock market was up 31%.
Argentina's Merval fell 1.2% to 2,219.97 on Monday. Mexico's IPC
shed 0.7% to end at 31,580.63.
In Chile, the IPSA turned positive, posting a 0.4% rise to
3,855.38.
Among exchange-traded funds, the iShares MSCI Brazil Index Fund
(EWZ) fell 1.1%. The iShares MSCI Mexico Index Fund (EWW) lost 0.7%
and the iShares Chile Investable Market Index (ECH) gave up 1%.
The regional equity markets posted their fourth consecutive loss
as investors remained concerned that fiscal deterioration in Europe
will hamper global economic recovery efforts. Those fears have
prompted investors to flock to the perceived safety of the U.S.
dollar, pushing the euro zone's currency to multimonth lows. Latin
American currencies have also declined against the dollar in recent
sessions.
The dollar index (DXY) edged up to 86.16 on Monday. The index,
which tracks the U.S. unit against a basket of six major
currencies, has gained more than 10% so far this year.
"When U.S. investors buy foreign stocks, mutual funds or ETFs,
their returns suffer when overseas currencies fall against the U.S.
dollar," wrote Alec Young, international equity strategist at
S&P Equity Research Services in a note to clients Monday. "As
sovereign credit risk has pressured the euro and other foreign
currencies vs. the greenback, negative currency translation has
significantly detracted from dollar-denominated foreign equity
returns."
In 2009, the weak dollar helped bolster a strong performance
among international assets, Young wrote.
Brazilian Central Bank President Henrique Meirelles earlier
Monday in New York said that the country is ready to fend off any
possible contagion from the fiscal crisis in Europe, noting that it
has a high level of foreign-exchange reserves and that it will be
prepared to provide liquidity if credit conditions tighten.
"There will a fiscal consolidation in a number of (European)
countries which will slow down growth in Europe as a whole,"
Meirelles said Monday afternoon during a Web cast hosted by Ernst
& Young focusing on Brazil's business environment.
"For Brazil, the crisis is good for no one," he said. "It's
possible, but very unlikely, this crisis will [have] the same
dimension as the [2008 global financial crisis] but...Brazil is
prepared to face that."
Industrial, steel and home-building stocks paced the decline in
Sao Paulo trading. Shares of chemical products producer Braskem
(BAK) were the worst price performers as they fell 8%. The company
late last week swung to a quarterly loss of 123 million reals, hurt
in part by a decline in Brazil's currency against the
greenback.
Market heavyweight Vale (RIO) lost 1.8% and stock in oil giant
Petrobras (PBR) fell 0.8%, giving up earlier advances.
Late Friday, Petrobras posted a jump in first-quarter earnings
to 7.73 billion reals ($4.25 billion) from 6.29 billion reals in
the year-ago period. The company cited higher oil prices and
increased output of crude as factors that contributed to the
earnings increase. Revenue rose 18% to 50.4 billion reals from 42.6
billion reals.
While investors have been focused on European sovereign debt
problems, the first-quarter earnings season in Latin America has
nearly reached an end, and actual earnings from 70% of MSCI Latin
America Index constituents that have already reported "are coming
in slightly disappointing," said broker Deutsche Bank in a report
to clients Monday.
Of the companies that have reported, 56% have missed consensus
estimates for earnings, and 52% have missed revenue estimates,
wrote Frederick Searby, an equity strategist covering Latin America
at Deutsche Bank.
Meanwhile, more than 80% of S&P 500 companies that have
reported as of last week have beaten consensus estimates, and
nearly 70% of Stoxx Europe 600 Index constituents have posted
better-than-expected per-share results.
"However, these results must be seen in light of the fact that
Latin America led the world in earnings revisions last year and
year-to-date, setting the bar quite high," wrote Searby.