WEEK AHEAD-LatAm mkts seen glued to Brazil,Wall St
Reuters, Sunday, September 06, 1998 at 18:32
By Shasta Darlington
SAO PAULO, Sept 6 (Reuters) - Praying for respite after a
harrowing skid last week, Latin American markets will be glued
to Brazil and Wall Street amid concern that the region's
biggest economy may not be able to fend off a crisis.
"It's pretty simple: If measures are not taken to lessen
the crisis, like a rate cut in the United States and measures
to help Russia and Brazil, if we don't see that, the markets
are going to continue falling, and falling faster," said
Argentine market analyst Hugo Dias Lourenco at C&E Consultores.
Latin American markets will be keenly watching whether a
measure announced Friday night in Brasilia will succeed in
stemming the dollar flight from Brazil, at least temporarily
shielding the region from an impending financial crisis.
The last word from the U.S. Federal Reserve was that it is
keeping a close eye on developments.
On Friday, the Central Bank said it will temporarily lend
money only at its Tban assistance rate of 29.75 percent,
suspending its 19 percent TBC prime lending rate. The two are
considered the ceiling and floor for rates.
The measure will efffectively raise the basic lending rate
in Brazil to about 30 percent until September 30. Economists
said the Central Bank is hoping to plug the flow of dollars out
of the country.
Traders estimate that some $5 billion fled the country last
week, putting a drain on international reserves .
In ARGENTINA, the stock market was expected to focus on its
misgivings on Brazil and to what extent that country can battle
off pressures to devalue its currency.
Panicked traders saw their neighbor's bourse fall close to
14 percent in intraday trading on Friday and responded with
their own sell-off, leaving the MerVal <.MERV> index of most
traded shares down 2.63 percent on the week at 354.96 points.
The index is down 48.37 percent this year.
Market watchers said the bolsa was in desperate need of
solid measures to stabilize Latin America's skidding bolsas.
"There's no more time to wait for the markets to become
reasonable. We have to stop the panic and stop this thing from
snowballing any further," C&E's Lourenco said.
Some traders also thought Monday's holiday in New York and
Brazil might give the local market a chance to rise on its own.
In BRAZIL, markets will be watching the effect of the
Central Bank's de facto rate increase.
"The government has to deal with these high dollar
outflows. We are definitely below $60 billion in reserves,"
said Marcelo Allain, chief economist for BMC Bank in Brazil. In
the recent past, Brazil had as much as $74 billion in reserves.
Economists interviewed by Folha de Sao Paulo newspaper said
the measure could stem the outflow of dollars, but it could
also unnerve already edgy investors and boost the country's
debt financing costs.
After tumbling more than 13 percent in intraday trading,
Sao Paulo's key Bovespa index closed off 6.13 percent on Friday
at a 26-month low of 5,837 points.
The market's performance this week will also depend on what
tilt Wall Street takes, and whether the Fed eases interest
rates, analysts said.
Until recently, the Fed was expected to leave rates
unchanged with the possibility of tightening given robust U.S.
growth. However, Fed chairman Alan Greenspan hinted on the
weekend that the Fed's policy bias might be as evenly balanced
to cutting as to raising rates given the market upheaval.
In CHILE, stocks are expected to post new losses on more
fears over the health of Latin American markets after having
been plagued by rumors of devaluations and Thursday's
unfavorable ratings announcements, traders said.
"I think we will fall more next week," a trader said. "I
don't see this market going up yet for six more months. I
wouldn't be surprised if (the IPSA share index) went to 50
(points)."
The blue chip IPSA <.IPSA> index of the leading 40 stocks
plunged 8.15 percent on the week to end on Friday at 59.75
points.
In MEXICO, investors have been glued to Brazil's
performance.
"If Brazil falls, immediately Argentina falls and drags us
all down," said Carlos Samano, head of research at Bancomer
brokerage. "The more things deteriorate outside, the more
vulnerable we are to any negative news here."
The leading IPC index <.MXX> dropped 1.84 percent on
Friday, 57.22 points, to close at 3,045.17 points.
The continued emerging market turmoil sent Mexico's peso to
an all-time closing low on the benchmark 48-hour contract of
10.24 pesos to the dollar.
In VENEZUELA, the stock market -- down over 73 percent this
year, and the world's worst performing after Russia -- was seen
tracking oil prices, which helped the battered bourse buck
Friday's regional sell-off, traders said.
World crude prices gained $1 a barrel last week on a
slowdown in Russian crude exports and a growing perception that
brimming U.S. fuel stocks may be on the decline as winter
approaches.
"I'm not sure whether oil prices will keep to that upward
trend, however," cautioned Vencred broker Alvaro Frias.
Oil dominates Venezuela's economy, and a fall in prices to
ten-year lows has forced the government to slash $3.7 billion
from public spending. On Friday, the government announced the
latest $540 million spending cut in an attempt to bolster
flagging confidence in the battered economy.
The bolsa's 15-share IBC index <.IBC> closed Friday at
2,737.45 points, down 5.6 percent on a week that saw all
regional markets smashed by global turmoil and Russia's
financial crisis.
shasta.darlington@reuters.com))
Copyright 1998, Reuters News Service |
