LatAm stocks' January boom fizzles so far
Reuters, Friday, January 09, 1998 at 16:07
By Ian Simpson
NEW YORK, Jan 9 (Reuters) - Latin American stocks' usual January boom has fizzled so far, with investors spooked by Asian turmoil staying away from the region, analysts and fund managers said.
However, they said that Latin American equities remained attractive because of the region's economic environment, which includes the lowest inflation in half a century, economic growth of 6 percent last year, sales of government-owned companies and other economic reforms.
"There is a higher-risk scenario (to Latin American stocks) with what's going on in Asia, but if you like emerging markets, you have to love Latin America," Francis Claro, a co-manager of the Evergreen Latin America Fund in Boston, said this week.
Fund managers and analysts' top picks for 1998 included Brazilian steel companies and government-owned companies earmarked for privatization, such as telephone company Telebras SA ((SAO:TEL_.P) (NYSE:TBR); Mexican banks, consumer goods companies and exporters; and Argentine telephone companies.
In recent years, Latin American stocks have enjoyed a surge at the start of the year, known as the "January effect." The jump was sparked in part by portfolio managers rejigging their holdings and pumping money into stocks in the new year.
Last year, for example, the ING Barings Latin American Index of leading regional stocks rose 7 percent in the first week of January.
However, this year the index has plummeted more than 12 percent after a year-end upsurge in prices. On Friday, it was off 6.16 points, or 3.61 percent, at 164.69 points.
The drop reflects a drop in flows into funds that invest in Latin American stocks.
In the week ended Wednesday, Latin American stock funds showed an outflow of $6 million, according to AMG Data Services, an Arcata, Calif., firm that tracks 42 funds with $4.2 billion in assets.
That compares with an inflow of $48.6 million for the comparable period in 1996. The funds have seen outflows in nine of the last 12 weeks.
"The sentiment on these funds is mixed at best, and no clear trend has emerged," said AMG President Robert Adler.
"Given the international currency markets, it's no wonder."
Analysts and fund managers mostly blame Asian currency and market turmoil for the downturn.
The wrenching downturns in such currencies as the Indonesian rupiah, the South Korean won and Thai baht has kept jittery investors away from anything to do with emerging markets, even ones with slight similarities or trade links to Asia.
"You can't just say Latin America is a good buy because it has good fundamentals. They (investors) may need a bit more than that," said Denis Parisien, Latin American equity strategist at Dresdner Kleinwort Benson.
Beside Asia's collapsing currencies, analysts also said Latin American stocks are also weighed down in part by a slumping Wall Street and a stronger dollar.
The more robust U.S. currency puts extra pressure on such countries as Brazil, with the world's eighth biggest economy, and Argentina. Their currencies are linked to the dollar, and the stronger currency makes their exports more expensive and thus less competitive.
They said a big question mark hanging over the region is whether investors' reluctance to put money in Latin America could widen its current account deficit and put pressure on its currencies, especially the Brazilian real.
Economists estimate Latin America will have a $70 billion current account deficit this year, up from $60 billion in 1997.
The current account embraces a country's balance of payments in goods and services.
"The fundamentals in Latin America have never been better. The vulnerablity of Latin America lies in the international money markets," said Don Hoskins, a Latin American portfolio manager at U.S. Trust Corp.
Copyright 1998, Reuters News Service |
