There is no sign of market contagion spreading through Latin American as a result of the economic cr...
There is no sign of market contagion spreading through Latin American as a result of the economic crisis in Argentina.
Despite the appalling political and economic news coming out of Argentina, the market has emerged from the recent turmoil relatively unscathed, according to Dominic Rossi, manager of Threadneedle's Latin American fund.
Argentina's Merval index recovered to 343 last week after hitting a low of 200 on 29 November, says Rossi, mainly because the events of recent weeks, with a series of presidents and civil unrest, were no surprise to the market.
Like Rossi, Nadine Salkeld, associate director at Govett has no exposure to Argentina. She says: 'These events have been a long time coming ' the government has not been making the necessary changes to the economy. Fixed interest rates and exchange rates have given the government little room for manoeuvre at a time when their debts are burgeoning.'
Rossi stresses that although the market is weak, it has not affected the rest of the region. He says Latin America performed comparatively strongly during the calender year 2001, growing by 0.2% compared with 14% drop for UK equities, a 21% fall for Europe and a 13% decline in the US markets in loval currency terms.
Rossi says the Argentine market makes up very little of the total Latin American market in capitalisation terms.
In addition, a number of Argentine companies were bought by foreign owners last year, removing a large part of the investible index.
Salkeld says: 'There are only six companies of any size in which to invest and of those Siderca, the steel company, is probably the most interesting as a devaluation play. But with the current uncertainty I am not really interested in investing in the country.'
The limited impact of the Argentine crisis in the region means that Latin America is still a sound place to invest, according to Rossi.
He says: 'There has not been the contagion effect that was seen after the Asian crisis in 1997 and the Russian default in 1998. The Brazilian market has rallied strongly since 11 September, for example.'
He says that the Bovespa index was at 14,331 last week after having been at 10,000 after 11 September, which equated to a 60% rally in dollar terms if the increased strength of the Brazilian currency was taken into account. He says the Mexican market has been even more immune to the Argentine difficulties, having been one of the strongest markets in the world for the past year.
But Salkeld says there was an impact on Brazil last year with the anticipation of the crisis affecting investor sentiment.
She points out there is a high volume of trade between the countries and says that the 2001 MSCI figures for Brazilian and Argentine markets were both down 22% in dollar terms. She agrees that the damage to other markets has been limited, however.
She says: 'We have seen that Brazil has managed to decouple from events and Mexico has not really been affected at all.'
She adds that although Brazil moved into recession last year, there was scope for the central bank to bring down interest rates to stimulate demand.
Mexico relatively unscathed by crisis.
Argentina's neighbours unaffected by crisis.
Mexico and Brazil performing well.
Very few stocks to invest in.
Uncertainty dents investor confidence.
No end in sight to Argentina's problems.
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