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Political Instability Weighs on Brazilian Markets

Latin American markets had a mixed session, with Brazilian shares easing on profit-taking, political turmoil and soft economic data, while upbeat sentiment about select Mexican and Argentinean stocks lifted those markets. Robust oil prices remained a focus as well.

Brazil’s benchmark Bovespa Index fell 82.64 points, or 0.29%, while Mexico’s benchmark Bolsa Index climbed 243.40 points, or 1.71%. Argentina’s Merval Index added 31.29 points, or 1.98%.


Brazilian shares eased back in profit-taking, amid firm oil prices and disappointing surplus data. Brazil posted a foreign trade surplus of US$ 3.67 billion in August, bringing the year-to-date surplus to US$ 28.35 billion.


Exports reached US$ 11.35 billion, while imports totaled US$ 7.68 billion. Analysts had predicted higher surplus figures, according to news reports.


Developments were grim on the political front as well. A House panel voted unanimously to recommend the expulsion of Brazilian Labor Party congressman Roberto Jefferson from the chamber of deputies, for his alleged participation in an irregular campaign finance scheme orchestrated by members of the governing Workers’ Party.


Another panel was expected to name at least 18 congressmen who should be investigated for their alleged role in the campaign finance scheme.


In company news, on the legal front, a court lifted its injunction preventing airline Varig from selling its cargo unit. The sale still requires the authorization of Rio de Janeiro’s 8th corporate court, which is handling the debt restructuring.


Mexican issues, meanwhile, rose strongly on bargain-hunting, despite mixed economic and corporate reports in the U.S. The U.S. ISM manufacturing index fell to 53.6 in August from 56.6 the prior month, below targets of 57.0.


Also, consumer spending climbed an in-line 1% in July, but income grew a softer-than-anticipated 0.3%. Also of note, news that President Bush had asked to meet with Federal Reserve chief Alan Greenspan generated speculation the central banker might be asked to pause the Fed’s rate tightening campaign.


On the corporate front in the U.S., giant Wal-Mart’s same-store sales for August grew less than expected.


In domestic stock action, Cemex continued to show strength, following the U.S.’s preliminary decision earlier in the week to cut penalty tariffs against the Mexican cement company.


Some analysts also attributed the stock’s outperformance to speculation the company will see higher demand for repair work in areas hit by Hurricane Katrina.


Separately, broadcaster Televisa lured buyers after an investment bank raised its rating to “buy” from “hold,” saying the company will likely benefit from political advertising in the run-up to next year’s presidential election.


Also of note, Telmex stated it is willing to give Colombia more time to assess its proposed deal to buy a majority stake in that country’s state-run phone company, Telecom.


The latter firm’s president later responded, saying the memorandum of understanding between Telmex and Telecom could be modified based on recommendations from Colombia’s comptroller general.


Argentine stocks advanced, with the Merval surpassing its prior record close of February 25, as the market continued to benefit from selective buying, notably in companies related to the oil sector, reported news services.


Thomson Financial Corporate Group – www.thomsonfinancial.com

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