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Strategies & Market Trends : Telebras (TBH) & Brazil -- Ignore unavailable to you. Want to Upgrade?

To: Steve Fancy who wrote (6865)	8/19/1998 5:52:00 PM
From: Steve Fancy	Read Replies (3) \| Respond to of 22640

Lagging LatAm stocks hit by sovereign risk-Salomon Reuters, Wednesday, August 19, 1998 at 16:59 NEW YORK, Aug 19 (Reuters) - Lagging Latin American equities are being hit by worries about countries' credit, Salomon Smith Barney analyst James Barrineau said Wednesday. In a report, he said questions about Latin American nations' credit quality -- the so-called "sovereign risk" -- meant Mexican stocks were favored over Brazilian shares. Russia's financial turmoil, including the de facto devaluation of the rouble Monday, is the cause of the unease about Latin American sovereign credit. "Equity trading thus far this week, with the U.S. rallying strongly and the Latin markets lagging, appears to reflect an appreciation of increased sovereign risk as reflected in the debt markets," Barrineau wrote. Speaking of Mexico's devaluation of the peso in late 1994, he said, "While emerging market debt spreads have once again blown out, they have room to widen further if post-Mexican devaluation levels are any guide." Stock markets in the region have dropped about 31 percent since the start of the year in dollar terms, according to a Morgan Stanley Capital International index <.CEFL=USD>. While the blue-chip Dow Jones Industrial Average has rallied about 3.5 percent so far this week, Latin American markets have been flat. "One would have thought some relief in the U.S. would have seeped south of the border," Barrineau said. "The fact that it has not reflects an appreciation that sovereign risk for the Latin countries has increased as reflected in debt prices." In early afternoon, a basket of Brazilian government bonds was trading at a spread of 872 basis points over comparable U.S. Treasuries, according to J.P. Morgan's Emerging Market Bond Index. The spread for Venezuelan bonds was 1,433 basis points above Treasuries. Brazil, Latin America's biggest economy, is considered vulnerable because of a stubborn public deficit. It also has a currency that, like the rouble, is pegged to the dollar. Venezuela is suffering from low oil prices and political uncertainty heading into December presidential elections. Mexican and Argentine debt reflected less risk. Relative to Treasuries, Mexico's spread was 770 basis points over Treasuries and Argentine debt showed a slightly wider spread of 733 basis points. "For equity players, this continuing sovereign risk focus, which implies a continuing market segmentation, favors Mexico," Barrineau wrote. Copyright 1998, Reuters News Service