May 27, 2020 / 2:58 PM / a month ago

EMERGING MARKETS-Most Latam FX weaken; stocks climb on recovery hopes

    By Susan Mathew
    May 27 (Reuters) - Brazil's real extended gains for a sixth
session on Wednesday while other Latin American currencies
weakened as worries about escalating U.S.-China trade tensions
dented risk appetite.
    Latam stocks, meanwhile, joined a rally in world stocks on
hopes of an economic recovery as countries reopened businesses
following pandemic-driven lockdowns. 
    Regionally, Mexico's auto industry picked up pace, with Fiat
Chrysler and BMW AG joining peers in
gradually dusting off operations.
    Mexican shares extended gains to a fourth session,
while Brazil's index jumped 1.4%. MSCI's index of Latam
shares hit a 10-week high and was up 1.6%. 
    "The stock market is pricing in a faster than expected
economic recovery," said Andrew Smith, chief investment
strategist of Delos Capital Advisors, but he warned of more
violatility as economic activity picks up. 
    But, investors kept a close eye for new U.S. action against
China after U.S. President Donald Trump said Washington would
respond strongly this week against Beijing's move to impose a
proposed security law on Hong Kong. Any escalation would hammer
a global economy already on track for a deep recession. 
    Analysts have been expecting commodity prices to pick up in
the second half of the year, which could see regional markets
outperform by year-end. But as China is a major destination for
Latam's commodity exports, further sanctions or tariffs could
derail the trajectory. 
    As oil prices fell, Mexico's peso was knocked off
10-week highs, while the Colombian peso came off highs
since early March. Falling copper prices saw Chile's
currency fall 1.2%.
    Brazil's real jumped 1%, extending gains after the
country posted a record current account surplus in April on
    "We believe the current account deficit will keep shrinking,
amounting to around $7 billion this year, i.e., 0.5% of GDP,"
said Citigroup EM FX strategists in a note. 
    The currency has gained about 7.8% over the last six
sessions, reducing yearly losses to about 24%, although
political uncertainty remained with the health crisis worsening.
    Economy Ministry officials said Brazil's government is
moving closer to getting emergency financial support via credit
guarantees to small-, medium- and micro-sized businesses to help
them tide over the pandemic-driven slump in economic activity. 

    Argentina's peso fell to new lows after Fitch and S&P
downgraded ratings as the country defaulted for the ninth time
last week. But hopes remained that a restructuring deal could be
reached soon.
    Key Latin American stock indexes and currencies at 1428 GMT:
  Stock indexes           Latest   Daily %
 MSCI Emerging Markets     925.32    -0.14
 MSCI LatAm               1796.54     1.61
 Brazil Bovespa          86693.45     1.43
 Mexico IPC              36333.37     0.35
 Chile IPSA               3743.92     0.27
 Argentina MerVal        40826.32    -0.57
 Colombia COLCAP          1076.38     0.34
      Currencies          Latest   Daily %
 Brazil real               5.2954     1.18
 Mexico peso              22.3530    -0.75
 Chile peso                 816.2    -1.31
 Colombia peso            3742.15    -0.53
 Peru sol                  3.4477    -0.43
 Argentina peso           68.3500    -0.12
 (Reporting by Susan Mathew in Bengaluru; Editing by Bernadette
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