LatAm markets may have discounted IMF/Brazil deal
Reuters, Wednesday, November 11, 1998 at 17:54
By Ian Simpson
NEW YORK, Nov. 11 (Reuters) - Latin American equity markets
are likely to shrug off completion of an International Monetary
Fund (IMF) financial rescue package for Brazil, analysts and
fund managers said.
They told Reuters this week that regional markets' recent
rises showed they had already taken into account approval of
the long-awaited IMF deal, which is expected to range from $30
billion to $45 billion.
Announcement of the package aimed at shoring up the world's
eighth-biggest economy could come this week, according to a
Brazilian negotiator.
The market analysts and managers recommended investors take
advantage of bargain Brazilian prices and put their money in
blue-chip stocks, such as telecommunications and power
utilities. Those sectors are seen in the best shape to ride out
a widely predicted recession next year.
"Regardless of what comes out of Washington and (a central
bank interest-rate meeting Wednesday) the market is going to
rise," said Daniel Selcow, a Latin American portfolio manager
at Nomura Asset Management USA Inc.
"But my impression is that most of the news is already
discounted."
David Chon, chief Latin American equity strategist at Bear
Stearns, said Brazil, the area's biggest economy, remained the
focus for regional investors.
He added the IMF package and Brazilian efforts to close a
gaping budget deficit had already eased investors' fears about
devaluation of Brazil's currency.
The relief has helped fuel a 63 percent rise in Brazil's
benchmark Bovespa stock index (INDEX:$BVSP.X) in the last month. Latin
American shares are up about 53 percent overall in the same
period.
"It's down to a stock-picking environment, since the big
bounce has already taken place," Chon said.
International lenders hope the IMF program will avert a
full-blown economic crisis in Brazil. They fear a financial
meltdown there might drag the rest of Latin America into
recession and further undermine global growth, which has been
hurt by crises in Asia and Russia.
The package is also seen as crucial at lowering interest
rates that were sharply raised to protect the currency. The
Central Bank's basic assistance rate is almost 50 percent a
year and the benchmark overnight rate is 42.75 percent.
Analysts and investors said stocks in telephone companies,
such as Telebras (SAO:TELB4) (NYSE:TBR) and its spinoffs, and
state-run utilities facing privatization were better bets than
banks and retailers.
Jane Heap, Latin American equity strategist at Deutsche
Bank, said banks and retailers would have to grapple with a
likely 1999 recession caused by the high interest rates.
"Once you see them start to come down, then look at the
private sector," she said.
Copyright 1998, Reuters News Service |
