Mass Killings by Drug Gang Don’t Worry Brazilian Investors

Latin American stocks tumbled as investors continued to take profits amid worries about rising global inflation and U.S. interest rates. Brazilian shares were further pressured by some lackluster earnings news from local corporate giants.

Brazil’s Bovespa Index dropped 940.52 points, or 2.34%. Mexico’s benchmark Bolsa Index fell 432.77 points, or 2.05%, while Argentina’s Merval Index lost 54.93 points, or 3.04%.

Brazilian stocks sank, as investors digested a mixed batch of local earnings reports and continued to fret over the outlook for U.S. interest rates.

Attacks by a drug gang that left 91 dead, half of them policemen, didn’t seem to have contributed to the market downturn. Fear of new attacks, however, shortened the period the Bovespa, the São Paulo stock market, kept open, this Monday, May 15.

On the earnings front, aircraft maker Embraer said late Friday, May 12, that its first-quarter net profit plunged to 86.9 million reais from 233.8 million reais a year earlier, missing expectations. Results were hurt by an appreciation of the real and a drop in deliveries.

Meanwhile, oil giant Petrobras late Friday said its first-quarter net profit rose 33% from a year ago to 6.68 billion reais but missed analyst estimates. Results were hurt in part by higher taxes.

Banco do Brasil SA posted a record first quarter net profit of 2.343 billion reais, up sharply from 965 million reais a year ago and above market forecasts. Results benefited from growth in the bank’s client base.

Elsewhere, Mexican shares dropped for a fourth straight session on continued profit taking amid worries that U.S. interest rates will rise higher than initially expected.

Before the recent bout of profit taking Mexico’s bolsa had risen strongly on optimism about local economic and earnings growth. In a sign the economy remains on solid footing, the Finance Ministry reported today that Mexico’s industrial production surged 9.7% in March from a year earlier.

Argentine issues followed the region’s descent into the red amid profit taking and concerns about rising U.S. interest rates and global inflation.

On an up note, a major investment bank upgraded Argentina to "outperform" from "marketperform." "We have been surprised at the staying power of Argentina’s recovery, and believe that the economy still has significant impetus, as long as commodity prices remain high," the bank said.

Thomson Financial – www.thomsonfinancial.com

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