EMERGING MARKETS-Recession worries see Latam assets mark bleak start to new quarter

Susan Mathew
·3 min read

* Chilean peso hair's breadth away from record lows * Brazil adds benefit for taxi drivers to aid package * Mexican bonds to outperform Latam peers - BNY Mellon By Susan Mathew July 1 (Reuters) - Latin American currencies fell sharply on Friday, with Brazil's real hitting their lowest in almost five months and Chile's peso just inches from record lows, as worries that major economies will tip into recession sent investors to safe havens. As major central banks prioritize inflation control, investors are starting to price in a hit to economic growth. MSCI's index of emerging market stocks which marked its worst first half on record, dropped another 0.9%. Its currencies counterpart hit seven-week lows, down 0.3%, as the dollar reigned supreme. A surge in commodity price due to sanctions on Russia was seen keeping assets of resource-rich Latam buoyant. But with the recent slide in their prices combined with some political ructions, regional assets have taken a beating. As copper and oil prices tumbled, exporter of the respective items, Chile and Colombia, saw their currencies lose 1.9% and 1.2% on Friday. Investors seemed to look past data that showed economic activity in Chile in May topped expectations, as well as an expected 150 basis points hike by Colombia's central bank late on Thursday. Brazil's real slid 1.8% with eyes on a stimulus package that could see the government breach its revised spending cap as President Jair Bolsonaro seeks to regain support ahead of elections in October. The government added yet another benefit on Friday, this time for taxi drivers, in the amount of 2.5 billion reais to the proposal. The pre-election aid package now awaits approval from the Lower House, which seen green-lighting the plan. Mexico's peso dropped 1.2% after having marked meager second quarter losses compared to other developing market currencies. Mexico benefits from its proximity and trade with the United States. "We believe (Mexican bonds) will likely outperform in the region (in the second half of the year) because the ruling Morena party may have reached a stalemate in congress on energy reforms," said Daniel Tenengauzer, head of markets strategy at BNY Mellon, referring to a plan to tighten state control of the electricity market. "This arguably positive news reflects broader stagnation of the party's white elephant projects," he said, adding that the non-energy trade balance remains in surplus as Mexico continues to monetize opportunities arising from global protectionist policies. Among stocks Brazil's Bovespa fell 0.2%, while most others were in the black. Key Latin American stock indexes and currencies at 1405 GMT: Stock indexes Latest Daily % change MSCI Emerging Markets 991.92 -0.87 MSCI LatAm 2011.51 -1.45 Brazil Bovespa 98258.58 -0.29 Mexico IPC 47614.05 0.19 Chile IPSA 4982.05 0.64 Argentina MerVal 0.00 0 Colombia COLCAP 1333.32 0.79 Currencies Latest Daily % change Brazil real 5.3280 -1.83 Mexico peso 20.3371 -1.22 Chile peso 935.9 -2.10 Colombia peso 4191.6 -1.18 Peru sol 3.8126 0.05 Argentina peso 125.4000 -0.14 (interbank) (Reporting by Susan Mathew in Bengaluru; Editing by Alison Williams)

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