March 14, 2014 / 5:30 PM / in 4 years

EMERGING MARKETS-Latin American stocks drop before Crimea referendum

By Walter Brandimarte
    RIO DE JANEIRO, March 14 (Reuters) - Latin American stocks
dropped on Friday before a weekend referendum in Ukraine's
Crimea, with investors fearing increased tensions between the
West and Russia that could result in economic sanctions against
Moscow and possibly a war in the region.
    The heightened geopolitical frictions have hit financial
markets across the globe, sending MSCI's benchmark stock index
for emerging markets 0.6 percent lower. Russian stock
indexes on Friday fell to their lowest levels since 2009 before
clawing back some ground.
    The Latin American portion of the MSCI index 
slid 0.5 percent, putting it on track to post a 3 percent loss
for the week.
    "Tensions with Russia regarding Crimea are likely to
escalate next week," Barclays' analysts wrote in a research
note, adding that investors will be monitoring whether possible
sanctions against Russia would involve less aggressive actions
such as visa bans and asset freezes or whether they could
escalate to trade restrictions.
    "The latter would have greater negative ramifications for
Russia and, possibly, global markets. This is not our baseline
scenario, but the situation is clearly fluid," they said.
    The referendum in Crimea, arranged after mass protests
toppled pro-Russian Ukrainian President Viktor Yanukovich, is
expected to win popular approval for Crimea to become part of
    In Brazil, the benchmark Bovespa index dropped 0.7
percent as investors grew averse to risk. Also weighing on the
index were shares of power utilities, which slid as investors
considered that a government plan unveiled late on Thursday to
help electricity distributors struggling with high power costs
failed to address the core problem. 
    The plan, which avoided increases in energy fares to
consumers this year by allowing to country's electricity
clearing house to seek private financing, did not address "an
imbalance of supply and demand" and did not allay rationing
risks, JP Morgan's analysts Fabio Akira and Cassian Fernandez
wrote in a note.
    Shares of Cia Energética de Minas Gerais SA, or Cemig
, sank more than 4 percent while the country's power
sector index dropped over 2 percent.
    Cushioning losses in the Bovespa index were shares of
steelmakers Companhia Siderúrgica Nacional and Gerdau
, which recovered part of recent declines that were
triggered by a steep fall in prices of metals over the past few
days. JP Morgan recommended investors to "overweight" both
companies in their portfolios saying the stocks looked cheap.
    In Mexico, the IPC stock index fell 0.4 percent as
shares of cement maker Cemex dropped nearly 3
    Chile's benchmark stock indexes  were little
changed, however, after the central bank suggested it could
further cut interest rates to support the economy after reducing
the country's key interest rate by 25 basis points to 4.0
percent late on Thursday. 
    Despite the weakness in stocks, Latin American currencies
were steady to stronger as investors considered their recent
sell-off overdone for now. 

    Key Latin American stock indexes and currencies at 1645 GMT:

     Stock indexes                     daily %    YTD %
                          Latest       change     change
 MSCI Emerging Markets   938.01        -0.55      -5.93
 MSCI LatAm              2837.19       -0.51      -10.91
 Brazil Bovespa          45146.09      -0.66      -12.35
 Mexico IPC              37891.67      -0.38      -11.32
 Chile IPSA              3634.37       0.1        -1.75
 Chile IGPA              17979.74      0.09       -1.36
 Argentina MerVal        5689.94       0.56       5.54
 Colombia IGBC           12995.35      -0.63      -0.58
 Peru IGRA               14826.75      -0.32      -5.88
 Venezuela IBC           2636.05       -0.12      -3.67
 Currencies                            daily %    YTD %
                                       change     change
 Brazil real             2.3590        0.04       -0.09
 Mexico peso             13.2175       0.58       -1.42
 Chile peso              571.5         0.14       -7.94
 Colombia peso           2041.64       0.33       -5.37
 Peru sol                2.804         -0.07      -0.39
 Argentina peso          7.8925        -0.03      -17.74

 Argentina peso          10.9          0.92       -8.26

    GRAPHIC on emerging market FX performance 2014:GRAPHIC on MSCI emerging index performance 2014:-------------------------------------------------------------->
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