Brazilian and Latin American equities continued to falter, as weakness in the U.S. negatively impacted domestic shares. Weaker-than-expected U.S. economic growth in the first quarter added to concerns that the global economy is slowing, which in turn could make investors more bearish toward emerging markets.
Brazilian issues led the declines, as both domestic and overseas funds sold shares. Mexican and Argentine stocks were also notably lower. Brazil’s benchmark Bovespa Index plunged 801.99 points, or 3.18%, while Mexico’s benchmark Bolsa Index tumbled 198.78 points, or 1.60%. Argentina’s Merval Index receded 31.55 points, or 2.33%.
In U.S. economic headlines, gross domestic product rose 3.1% in the advanced reading for the first quarter, down from the 3.8% expansion recorded in the fourth quarter. On average, analysts had predicted GDP growth of 3.5%.
Brazilian issues slumped on the session, following the U.S. market lower on its disappointing GDP report. Also, the Brazilian Central Bank again warned about impending inflationary pressures and “deterioration in the overseas outlook.”
The central bank also commented that maintaining the current interest rate level for “a sufficiently long period of time would not offer adequate conditions to assure the convergence of inflation toward the trajectory of targets.” Economists had hoped for some indication that the bank would end its tightening cycle.
Turning to corporate reports, integrated flat-steel producer CSN last night posted a first-quarter net profit of 717 million reais, 115% above last year’s 333 million reais. Revenues surged to 2.86 billion reais from 1.86 billion reais.
The firm said that strong steel prices were responsible for the results. The firm’s EBITDA margin jumped to 47% from 45% a year earlier, but was down from the 50% reading in the fourth quarter of 2004.
Within the airline group, Brazil’s low-fare airline GOL said that it priced a public offering of 14.7 million preferred shares at a price of US$ 27.88 per American Depositary Share.
Elsewhere, Brazil’s Banco Opportunity and Telecom Italia ended a long-running legal dispute and agreed to share control of Brasil Telecom. Telecom Italia will also be able to negotiate with other partners in Brasil Telecom to buy out their stakes in the firm, and possibly even Opportunity-held shares. Telecom Italia will also pay Opportunity 50 million euros to end all legal disputes.
Mexican issues also felt the weight of the disappointing GDP report from the country’s key trading partner. In corporate earnings reports, beverage group Femsa said that its first-quarter net profit suffered from expenses related to the repurchase of a stake in its beer unit.
The firm’s earnings fell 16.9% to 716 million pesos, although sales were mostly solid across all of the firm’s divisions. Still, net profit at Femsa’s largest unit, Coca-Cola Femsa, tumbled 23% to 695 million pesos.
Meanwhile, Grupo Modelo SA announced a 31% leap in its quarterly net profit to 1.52 billion pesos from 1.16 billion pesos a year prior on an advance in sales to 10.76 billion pesos.
Argentina’s market also took part in the broader sell-off. Investors are still waiting for a final decision from a U.S. federal appeals court regarding a creditor lawsuit that has frozen US$7 billion in defaulted debt. A decision could be rendered in one to two weeks.
Elsewhere, Indec, the national statistics agency, said that Argentina’s trade surplus narrowed to US$736 million in March from US$975 million in the same period a year ago. A rise in imports was partly cited for the smaller surplus.
Thomson Financial Corporate Group
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