EMERGING MARKETS-Latam assets fall on high yields, Brazil's real leads weekly losses

Susan Mathew and Ambar Warrick
·3 min read

* EM FX set for worst day since March 2020 * Brazil's real to lose 3.8% this week * Latam assets lag EM peers (Adds details, updates prices) By Susan Mathew and Ambar Warrick Feb 26 (Reuters) - Chile's peso led losses across Latin American currencies on Friday, pressured by weak manufacturing data and copper prices, while Brazil's real lagged its peers this week on concerns over stretched fiscal spending and populist policies. The peso dropped as much as 1.7% on news that Chilean manufacturing output fell 4.4% in January. Copper prices also retreated from recent highs amid a recent pullback in risk appetite, further pressuring the peso. Still, analysts were hopeful that with COVID rates past their peak, and with a vaccine program underway in Chile, economic activity would eventually bounce back this year. "While the rate of new infections remains high, the second Covid wave is already past its peak, and Chile’s exemplary vaccination campaign has already reached 16% of the population.. we expect the ongoing recovery in real activity to accelerate in the coming months," Goldman Sachs analysts wrote in a note. But in the near-term, broader sentiment remained on edge as yields on U.S. bonds rose, putting an index of EM currencies on course for its worst day since a COVID-induced sell-off last March. Brazil's real dropped more than 1% and was set to shed about 4% this week. The currency has been under pressure from the country's fiscal woes and worries about a return to populist policies by the government. The real took little support from the central bank extending its $60 billion swap line with the U.S. Federal Reserve until the end of September, as investors fretted over the government exceeding its spending caps and severely damaging its credibility. The MSCI's index of Latin American currencies dropped 1.4%, while most stocks in the region also retreated. Losses over this week saw Latam assets also set to end February in the red, lagging their broader emerging market peers. Barclays strategists noted the economic outlook, especially for manufacturing in emerging markets, remained robust. "But political developments, especially in Brazil and other LatAm countries, have added some idiosyncratic sources of volatility for EM assets." Mexico's peso and Colombia's peso both fell, tracking losses in oil markets. But losses in the Mexican currency were somewhat alleviated by the state-run oil firm Petroleos Mexicanos marking a second consecutive quarterly profit, pointing to some improved prospects for its sky-high debt levels. Key Latin American stock indexes and currencies: Latest Daily % change MSCI Emerging Markets 1338.81 -3.25 MSCI LatAm 2215.05 -2.07 Brazil Bovespa 111609.76 -0.58 Mexico IPC 44587.32 0.63 Chile IPSA 4573.37 -0.02 Argentina MerVal 48667.59 -0.517 Colombia COLCAP 1332.05 -0.28 Currencies Latest Daily % change Brazil real 5.5830 -1.34 Mexico peso 20.9350 -0.47 Chile peso 724.9 -1.27 Colombia peso 3644.5 -1.00 Peru sol 3.6477 0.00 Argentina peso 89.8200 -0.07 (interbank) (Reporting by Susan Mathew in Bengaluru; Editing by Kirsten Donovan and Elaine Hardcastle)