Latam assets down on ‘hangover’ after dovish Fed

BRASILIA: Risk sentiment across Latin American markets received a thumbs up as assets were set for weekly gains boosted broadly by the US Federal Reserve’s dovish narrative, but were down on Friday due to policy and political uncertainty in certain regaional markets.

For the week, the MSCI’s gauge for Latin American equities was set to gain 3.6%, while the broader currencies index was on track for marginal gains of 0.2%.

Despite weekly gains, the broader stocks and currencies index fell 0.7% and 0.5% respectively by 1529 GMT on Friday.

“It’s(fall in Latam stocks, FX) related mainly to the hangover following the Fed’s policy shift that we saw this week,” said Andres Abadia, Chief Latam Economist at Pantheon Macroeconomics.

Abadia added that there were some down forces acting on certain regional markets related to local, political and policy factors with reference to Brazil’s monetary policy uncertainty and Chile’s referendum to replace the country’s dictatorship-era constitution with voting scheduled on Sunday.

Even though Brazil’s central bank lowered its benchmark interest rate by 50 basis points as expected on Wednesday, the bank held a steady outlook for its next steps, evoking some concerns of policy uncertainty.

Chile’s peso dropped 0.8%, while the Brazilian real shed 0.4% against the dollar.

Investors appetite for risky assets beefed up after the Fed on Wednesday held interest rates unchanged and showed a green flag for likely rate-cuts next year.

In a week logged with key central bank decisions and economic data across regional Latam markets, the Fed’s dovish story led the limelight charts, while Argentina’s economic ‘shock therapy’ measures also had its fair share of grabbing investor eye-balls.

Colombia’s Colcap index slid 1.4% after a disappointing industrial output and retail sales data for October.

Brazilian shares dipped 0.4% after rising slightly, but hovered around record highs, which the index touched during the previous session.

Mexican shares were also hand in glove with Brazilian markets, with the benchmark stock index recording all-time highs in the previous session driven by airport operator shares, but edged down 0.3% on Friday.