Tuesday, March 7, 4:45 PM EST (Thomson Financial): Latin American stocks
tumbled, as a recent sharp increase in U.S. Treasury yields prompted investors
to reassess their emerging market equity holdings. Argentine shares were
further pressured by profit taking.
Brazil's Bovespa Index plunged 931.40 points, or 2.43%. Mexico's benchmark
Bolsa Index dropped 440.39 points, or 2.32%, while Argentina's Merval Index
fell 39.32 points, or 2.17%.
Brazilian stocks sank, as a surge in U.S. 10-year Treasury yields
yesterday fueled concerns the U.S. Federal Reserve may pick up the pace of its
monetary tightening or extend its tightening cycle longer than expected to
contain inflation. The recent rise in U.S. treasury yields has been widely
seen as reflecting expectations of further interest-rate hikes. Higher U.S.
rates tend to divert investment flows away from emerging markets like Brazil.
Meanwhile, the local interest-rate outlook remained more favorable, with
investors widely expecting Brazil's central bank to cut its reference Selic
interest rate by at least three-quarters of a percentage point from a current
17.25% after a two-day meeting that started today. Moreover, recent
indications that inflation remains under control have fueled expectations the
bank will extend its cutting campaign at future meetings. The bank started its
easing cycle in September 2005.
In another sign of tame inflation, the Getulio Vargas Foundation said its
IGP-DI inflation index fell 0.06% in February compared with a jump of 0.72% in
January.
In other economic data, industrial activity in Sao Paulo state rose a
seasonally adjusted 1.5% in January from December, the Sao Paulo Federation of
Industries (Fiesp), reported.
On the corporate front, mining giant Companhia Vale do Rio Doce (CVRD)
said its fourth-quarter net profit leapt 66% to US$1.196 billion from US$721
million a year earlier. Revenue surged 54% to US$3.746 billion from $2.428
billion. Despite the strong results, the company noted cost pressures related
to the real's strengthening against the U.S. dollar. "The appreciation of the
real has affected costs. CVRD's revenues are in dollars, but our costs are in
reals. It will be an enormous challenge in 2006 to contain costs," said the
company's president Roger Agnelli.
Meanwhile, an influential investment bank raised its ADR price targets for
four of Brazil's biggest banks - Bradesco SA, Banco Itau SA, Unibanco and
Banco do Brasil SA -- due to the revision of its foreign exchange forecasts.
In political news, Brazilian Finance Minister Antonio Palocci will
continue in his post and will not coordinate President Luiz Inacio Lula da
Silva's reelection campaign, Workers' Party National Chairman Ricardo Berzoini
told reporters. "Palocci is fundamental for the economy and there is no reason
for him to leave his current post to coordinate the electoral campaign," he
said.
Mexican shares plunged today, as rising U.S. Treasury yields resulted in
investors selling off shares in emerging markets. Meanwhile, U.S. fourth-
quarter productivity was revised to show a decline of 0.5%, versus the initial
drop of 0.6%. In the third quarter, productivity had jumped 4.2%. Analysts had
predicted a decline of 0.2% for the fourth period.
In corporate reports, Colombian state-controlled firm Colombia
Telecomunicaciones SA said that Telmex may bid for control of the firm, as it
purchased bidding forms to participate in its auction.
Elsewhere, a major investment bank raised its price target for America
Movil, as it believes the wireless titan's valuation is compelling, and its
stock price does not reflect possible margin expansion this year and next.
Last night, Cemex SA announced a second plant expansion in North America
in less than a month. The cement titan will invest US$210 million to add 1.8
million metric tons to the 1.35 million tons of capacity at its Yaqui plant.
Argentina turned notably lower today, following more modest declines
yesterday. Profit-taking is the main culprit, after the main Merval Index
surged last week, hitting two consecutive record highs in peso terms.
Transener edged higher, after the firm completed the sale of more than
eight million Class C shares yesterday, with no subscribers. The shares will
now be converted to Class B shares and will likely be passed to creditors.
-- Paul.Davee@thomson.com; Thomson Financial Corporate Services
This is Thomson Financial Corporate Services Latin American Commentary.
The information herein is believed to be true and accurate, we take no
responsibility for inaccurate information and reserve the right to update our
reports. If you have any questions please e-mail James Sang at
james.sang@tfn.com or call 646.822.6233. For more information about Thomson
Financial, please visit our web site at http://www.thomsonfinancial.com.
SOURCE Thomson Financial Corporate Group
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