Monday, August 8, 2011

LatAm stock markets not immune from "black Monday"

The aftermath of last week’s U.S. debt ceiling debacle and the downgrade on Friday of the country’s credit rating by Standard & Poor’s has caused a massive selloff in the global stock markets. Latin American markets have not been immune to the apparent crisis in the international financial sector.

Argentina’s stock market may be the region’s hardest-hit before the end of trading today. The Merval index nosedived by at least 9.17% with sixty-nine of the index’s seventy-three stocks in the red. Among those companies suffering the greatest losses are Mirgor (- 14.17%), Petrobras Argentina (- 12.09%) and Edenor (- 10.00%).

In Brazil, meanwhile, the Bovespa index plummeted this afternoon by a least 8% after plunging by 5.6% by mid-day. The early afternoon loss thus represented the lowest intraday level in over two years and the nadir of a two-week long market decline.

Earlier today President Dilma Rousseff admitted that her administration would be willing to “take any measures necessary” in order to stem Brazil’s financial troubles. Yet in a press conference with visiting Canadian Prime Minister Stephen Harper, Rousseff also promoted the importance of stronger trade relations and observed that Brazil “can't mess around right now and go out spending what we don't have.”

Rousseff’s remarks about avoiding overspending were coincidentally echoed by Uruguayan president Jose Mujica. “There’s no other reasonable solution than to follow the criteria of a good housewife,” noted Mujica in an interview with a local newspaper. He further observed that in terms of the regional economy South America has done “very well” but “from Colombia towards the north the dependency on the U.S. market is complicating matters.”

For other countries in the region the financial news wasn’t positive at all:
  • Chile: With roughly one hour left until closing the blue-chip Ipsa index plunged by 7.2% and fell below the 4000-point mark for the first time since Lehman Brothers collapsed in June 2008.
  • Mexico: The IPC index fell by 6.05% with stocks in the financial and mining sectors being hit the hardest.
  • South America: The general index in the Lima, Peru stock market fell by over 5% at noon while Colombia’s Igbc declined by 3.2%.
The region’s currencies also suffered losses today as uncertainty looms over the future of the global economy:
In an effort to limit potential losses, investors are selling stocks, bonds and currencies to hold more liquid assets. For many, that means the U.S. dollar, the most liquid asset of all, said Diego Donadio, Latin America currency and debt strategist for BNP Paribas in Sao Paulo.

"The important thing to remember is that the downgrade has increased the level of uncertainty in the world and raised doubt about exactly what is a risk-free asset," he said in an interview.

"In a moment like this, you buy the most liquid asset, the main asset that your debts and trade is valued in, and in Latin America, that's the dollar."
Image- AP via ABC News (“In this Aug. 4, 2011 photo, a trader works on the floor of the New York Stock Exchange, in New York.”)
Online Sources- MSNBC, Reuters, La Republica,, La Tercera, El Universal, BBC News, El Cronista,,, Bloomberg, EFE

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