Latin American stocks fell on Friday as Brazil sank to its lowest in more than five months as investors pulled to the sidelines amid concerns about unrest in Egypt and high valuations in local stocks. The MSCI Latin American stock index fell for a third consecutive session, giving up 1.59 percent.
Brazil's Bovespa index sank 2.24 percent on Friday, hurt by concerns that a wider conflict in the Middle East could derail sharp gains in emerging markets since the rebound from the depths of the 2008-2009 financial crisis. Emerging market economies like Brazil have posted strong growth despite the sharp slowdown in developed economies since 2008. But some are worried that a combination of higher interest rates in China and a snowball effect in the Middle East could curb gains.
"There are reasons to be positive about Brazil, but clearly foreigners are turning negative with both the global political situation and the domestic macroeconomic elements," said Oliver Leyland at Mirae Asset Global Investments in Sao Paulo. Also hurting Brazil, investors were concerned about potential budget cuts that could cool growth in Latin America's top economy.
Brazil's government has promised to reduce spending to curb inflation pressures even as the central bank has been raising borrowing costs. "There are a lot of investors pulling money from blue chips, and financials are taking some pain from it," said Lucio Biagio, a trader with Concordia Corretora brokerage in Sao Paulo.
Financial stocks tumbled. Banco do Brasil, the nation's largest bank, fell 3.96 percent. Itau Unibanco, the country's largest non-government bank, shed 2.77 percent. "Foreigners are exiting across the board, and I don't really see a short-term solution to this situation," added Biagio.
Concerns about a deterioration in inflationary expectations, which have been rising for eight weeks in a row in a central bank survey, and a weak government response to it are also fuelling sales of equities, he noted. Iron miner Vale dropped 1.58 percent. Concern that China will keep putting the brakes on investment dampened the outlook on Vale's future sales, said Roberto Monteiro, a senior trader at Corretora Souza Barros in Sao Paulo.
Brazil's real estate and retail stocks also fell after US employment rose less than expected in January. Foreign investors are betting on a decline in the Bovespa in the short term, according to data from the stock exchange. While some cited political unrest in Egypt and other Middle East nations as the reason to exit Brazil in the past two weeks, others said a deterioration in Brazil's public finances and inflation numbers clobbered demand for stocks. OGX, the oil company, fell 4.03 percent.
BM&FBovespa, the world's third largest stock exchange operator, dropped 3.84 percent - its third straight decline. Analysts are concerned over a plan to revise fees that could result in a significant tumble in revenue. Mexico's IPC index slid 0.76 percent on Friday, dragged down by telecoms as earnings reports weighed. Telmex lost 3.07 percent and Slim's cell phone provider America Movil, after posting after a surprisingly steep 32 percent drop in fourth-quarter net profit on lower revenue and higher taxes.
Miner Grupo Mexico also slightly missed profit expectations on Friday and its shares fell 0.34 percent. Chile's IPSA index added 0.95 percent after closing the previous session at a five-month low. Industrial conglomerate Copec led with a 4.14 percent gain in a volatile, low-volume session.