Brazilian and Latin American markets turned lower, yesterday, returning gains acquired last Friday. An early surge in crude oil prices to a level above US$ 58 a barrel led to investor jitters regarding higher U.S. interest rates and the potentially negative effects on Latin American markets.
Brazilian, Mexican and Argentine shares all declined on the session. Brazil’s benchmark Bovespa Index tumbled 367.08 points, or 1.37%, while Mexico’s benchmark Bolsa Index slid 120.81 points, or 0.95%. Argentina’s Merval Index receded 31.80 points, or 2.23%.
Brazilian issues fell, as oil prices hit record high levels above US$ 58 a barrel earlier in the day, before ultimately slipping lower. Rising oil prices heighten concerns that U.S. rate tightening could accelerate at a faster-than- expected pace, and thereby make Brazil and other emerging markets less attractive.
Still, word that Organization of Petroleum Exporting Countries is considering increasing its output ceiling by 500,000 barrels a day may have eased some concerns. Separately, power companies were major decliners, after they sold less-than-expected power at an auction over the weekend.
Also, economists raised their 2005 inflation forecast for Brazil for the fifth-straight week, according to a central bank survey. Surging oil prices and a weakening currency were cited for the uptick. Economists’ mean estimate for 2005 inflation advanced to 5.88% from last week’s 5.83%.
Turning to corporate reports, the president of Petrobras SA’s Bolivian unit said in a Dow Jones Newswires interview late Friday that it is unlikely Bolivia will be able to hike the price of natural gas it sells to Brazil and Argentina, as the price is already high by the time it reaches customers due to transportation costs.
Last week, Bolivian Energy Minister Guillermo Torres said Bolivia would look to raise natural gas prices, in future negotiations, by up to double the level both Brazil and Argentina pay now. The energy minister cited “very depressed” price levels, compared to rates in Europe and Asia.
Brazilian petrochemicals firm Braskem SA said late this past Friday that its shareholders approved plans to reorganize the firm’s American Depositary Receipts and underlying shares in order to bolster liquidity. The move will also lower the price per share.
Separately, Mexican equities tumbled on inflation concerns arising from the recent spike in oil prices.
Meanwhile, Mexican congressmen voted 3-1 late Friday to hold an impeachment trial for Mexico City Mayor Andres Manuel Lopez Obrador regarding a land use dispute, further heightening political turmoil in Mexico.
The full House is expected to vote toward the end of this week on whether to strip the mayor of immunity from prosecution, which could ultimately bar him from running for president in 2006.
Meanwhile, Argentine shares also witnessed declines, and the country’s debt exchange could be postponed for several weeks.
Argentina had planned to issue US$ 35.21 billion in new bonds this past Friday in exchange for defaulted bonds that were tendered by creditors who agreed to accept losses on their holdings. However, several creditors refused to participate in the exchange, and are suing in U.S. courts.
According to a lawyer representing one of the creditors, the Second Circuit Court of Appeals in Manhattan set dates for both sides to submit written briefs, which could delay an oral hearing until late April. Sources close to the matter said the appellate court may not require such a hearing before issuing a ruling.
In research, an investment bank raised its 2005 price target on Telecom Argentina, but maintained its “underperform” rating on the underlying shares.
The bank said it remains “cautious” regarding Argentina’s economic recovery, and its sovereign debt restructuring “may not go as smoothly as the government hoped.”
Separately, Venezuela’s Finance Ministry said it will sell US$ 1 billion in bonds on domestic markets this week, which will keep borrowing costs down. Investors will pay bolivars at an exchange rate of 2,150 per U.S. dollar, roughly in line with the government’s fixed exchange rate.
Thomson Financial Corporate Group