Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

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

To: djane who wrote (7921)	9/11/1998 10:35:00 PM
From: djane	Respond to of 22640

Mexican central bank wages war on speculators Friday September 11, 7:50 pm Eastern Time By Andrew Hurst MEXICO CITY, Sept 11 (Reuters) - The guardians of Mexico's battered peso have a fight to the finish on their hands as they seek to bolster the latest currency to become a victim of the world's emerging market woes. Because Mexico has one of the most liquid currency markets of any emerging market country, the peso has become a soft target for speculators seeking to place proxy bets against other currencies -- such as Brazil's real -- which they believe are heading for a fall. ''It's the biggest most liquid emerging market currency market,'' said a New York banker who asked not to be named. ''If you want to bet on Brazil's currency weakening you simply short the (Mexican) peso,'' he added. The peso closed at an all-time low for the third day running on Friday with the benchmark 48-hour peso shedding seven centavos to end at 10.58/10.62 against the dollar. But for Mexico's monetary authorities there is more at stake than national self-respect. As the peso has plunged, the central bank has hiked interest rates, fuelling fears that the economy will be tipped into recession. ''The peso has become one of the thermometers of emerging market sentiment,'' said Juan Pablo Chavez at IDEA in New York. Some funds have been using the peso as a hedging device against other emerging market instruments. ''You buy-high yield Thai bonds or Ukrainian treasury bills and then hedge it by shorting the peso,'' an economist with a large investment bank in New York. The peso's role as a punching bag for nervous investors in emerging markets has driven down the currency's value to a point that it is widely seen as undervalued in relation to the real state of health of the Mexican economy. ''The peso has reached levels that have stopped reflecting economic fundamentals'' said Chavez. The Bank of Mexico, ever sensitive to the threat to inflation posed by a fallen peso, has tightened liquidity and hiked interest rates in recent weaks in an effort to brake the currency's fall but to no avail. But now the central bank appears to be ready to take off the gloves and to mix it up with the currency speculators. Central Bank governor Guillermo Ortiz declared on Thursday he was prepared to intervene in the foreign exchange market whenever he saw fit. The Bank of Mexico did as much earlier in the day with a discretionary sale of $278 million outside a pre-settled automatic intervention mechanism in which it sold an additional $200 million. The prospect of random interventions by the central bank to support the peso appears to have put the hedgers on the defensive. "The Mexican forex market may cease to be an efficient hedge against emerging market risk, said Chavez. One trader said on Friday: ''right now nobody wants to buy excessive (dollar) positions because it could turn out to be very expensive if Banco de Mexico intervenes.'' ''This latest intervention has altered the rules of the game and ... this should increase the cost of this hedge,'' he said. One of the most alarming aspects of the slide in the peso, which has lost 23 percent of its value against the dollar this year, has been its tendency to feed on itself as Mexican investors take fright and dump the currency. Mexico's long history of currency instability has instilled strong survival instincts among Mexicans who tend to take to their heels as soon as they sense that the currency is coming under strong pressure. ''You also have an overreaction in Mexico because those people who did not switch into dollars in time in the past got burned,'' said Jonathan Heath, an independent economist based in Mexico City. ''You can't blame them, it's perfectly rational behavior,'' he added. Related News Categories: currency, international, US Market News Help Copyright c 1998 Reuters Limited. All rights reserved.

To: djane who wrote (7921)	9/11/1998 10:36:00 PM
From: djane	Read Replies (1) \| Respond to of 22640

''If you want to bet on Brazil's currency weakening you simply short the (Mexican) peso,'' he added. -- And we wonder why countries impose currency controls...

To: djane who wrote (7921)	9/11/1998 10:40:00 PM
From: djane	Respond to of 22640

FOCUS-Brazil rate hike offers only short-term relief Friday September 11, 8:13 pm Eastern Time (Rewrites throughout, adds market close, analyst comments) By Joelle Diderich BRASILIA, Sept 11 (Reuters) - A drastic interest rate hike in Brazil has staved off fears of an imminent devaluation, but economists said the country would have to take tougher measures urgently to tackle the economy's bugbear -- the budget deficit. Brazilian stocks reversed their free fall, bouncing up 13.39 percent on Friday on optimism that the Central Bank's decision to hike rates to a whopping 50 percent would stem a mass exodus of dollars out of Brazil. The stream of dollars, which has so far averaged $1.5 billion a day in September, thinned noticeably on Friday with foreign exchange dealers reporting that about $730 million left the country by late afternoon. Latin American financial markets also rallied on sentiment that Brazil was pulling out all the stops to avert a devaluation of the real currency, the centerpiece of a four-year economic stabilization drive that ended years of hyper-inflation. ''The government showed its determination to defend the real and could lure investments to stay in Brazil for the better returns,'' said a fund manager at Lloyds Asset Management. The Central Bank late on Thursday raised its basic lending rate to 49.75 percent from 29.75 percent after a nerve-racking day that saw investors yank about $2 billion out of the country. Brazil's hard-currency reserves have plummeted to $52 billion, a nine-month low, from about $70 billion at the beginning of August as the economic crisis in Russia shattered investor confidence in other emerging markets. Foreign currency reserves are Brazil's main defense against a speculative attack on the real, widely considered overvalued by between 10 percent and 30 percent. Economists said Brazil was not out of the woods yet, adding that an international rescue package, tougher fiscal measures or a combination of both were needed to stave off the threat of a collapse in Latin America's largest economy. Markets speculated on Friday that the International Monetary Fund (IMF) was preparing to step in with a regional assistance package for Latin America, but Brazil's Finance Ministry dismissed rumors of an IMF deal as ''pure speculation''. IMF First Deputy Managing Director Stanley Fischer said the institution was prepared to assist Brazil financially but had not been asked to help yet. ''If we got a package, we'd see a lot of bounce, a lot of short-covering,'' said ABN Amro Latin American strategist John Mullin. ''However, it only buys them some time. They have to address the fundamentals in a very convincing way to really turn them around.'' President Fernando Henrique Cardoso, stung by the flaccid market reaction to budget cuts announced earlier this week, was expected to postpone any additional fiscal measures until after the Oct. 4 general election, which he is widely expected to win. Whether nervous investors can wait that long is uncertain, analysts said. ''In terms of assuaging international investors, (fiscal reform) really needs to happen now,'' said Joe Petry, chief economist for Latin America at Citicorp Securities in New York. ''The international market has really grown impatient.'' While soothing frayed investor nerves, the latest rate hike -- coming on the heels of a more modest one last Friday that took rates to 29.75 percent from 19 percent -- has the unwelcome side effect of sending local debt servicing costs soaring. A jump in interest rate payments will aggravate the nominal deficit, already unsustainably high at 7.27 percent of gross domestic product (GDP) between January and June. Analysts forecast interest payments on domestic debt would rise a massive 3.75 billion reais ($3.18 billion) a month due to the latest rate hike, effectively erasing any benefit from some 4 billion reais in budget cuts announced this week. Related News Categories: currency, international, US Market News Help Copyright c 1998 Reuters Limited. All rights reserved.