Latin American stocks ended the first quarter of 2012 strongly on Friday with Brazil's Bovespa and Chile's IPSA posting their sharpest quarterly gains since September 2010. With fears of a European debt crisis easing and a slowly improving economy in the United States, Brazil's Bovespa stock index advanced 13.6 percent this quarter to 64,510.97. Chile's IPSA stock index climbed 11.8 percent.
The Bovespa is likely to reach an all time high of 75,000 points by year end and Mexico's IPC stock index, which logged a 6.5 percent gain this quarter, is expected to jump 13 percent from the 2011 close, according to a recent Reuters poll. "There is abundant liquidity and interest rates are very low. This is an attractive sign for the market," said Luciana Pazos, wealth management chief at Mirae Securities. Low interest rates in the US, Europe and Japan have helped fuel the rise in riskier assets as investors flock to higher-yields. The MSCI Latin America index shot up 13.9 percent this quarter. The biggest risk for the markets now is a worsening economic picture in China or the euro zone, where a debt crisis dragged down global markets last year, Pazos said.
In Brazil, measures by president Dilma Rousseff's government to stimulate economic growth including accelerating the pace of interest rate cuts have lifted Brazilian shares But foreign investors, who drove the market higher over the first three months of the year, have pulled money out of the region's equity markets in the past week, according to EFPR, a group tracking hedge fund activity in emerging markets.
Latin American equity funds lost 0.72 percent of assets under management last week, on top of a 0.25 percent decline in the previous week. "The gains are justifiable considering the interest rate cuts and the flow of foreign money, but maybe it was a bit overdone," said Maurício Nakahodo, a senior economist at CM Capital Markets in Sao Paulo. "This behaviour (in Brazilian markets) can continue but not at the same pace since the fall of interest rates may stop."
Credit Suisse Group analysts said this week that Brazilian banks will struggle this year with lower interest rates, weak credit growth and still-high loan defaults, which should limit their shares from outperforming the Bovespa. Sources told Reuters recently that Finance Ministry officials want state-controlled Banco do Brasil and Caixa Econômica Federal to lower lending rates and disburse credit more rapidly to help combat a local slowdown. That may fuel more competition, prompting private-sector banks to either lose market share at the hands of their state-owned rivals, or see declines in interest income and profit.
"The market is finally turning more realistic about banks," said Rafael Dornaus, an equities trader with Hencorp Commcor brokerage in Sao Paulo. Shares of Itau Unibanco, Brazil's largest private-sector lender, fell 1.96 percent and Banco Bradesco, the nation's second-largest private-sector lender, fell 0.50 percent.
In Mexico, where the IPC recently broke an all-time record, analysts say the index could reach 40,000 points. But some foresee a slow week ahead with volumes lower as investors wait for first quarter reports and a shortened holiday week in Latin America cuts trading activity.
The IPC gained 1.01 percent on Friday, led by bottler Femsa jumping 5.25 percent and Kleenex and Huggies brand manufacturer Kimberly-Clark de Mexico climbing 6.40 percent. Stocks have been lifted by weeks of upbeat economic reports from the United States, where Mexico sends near 80 percent of its exports, though recent reports have showed signs of slackening.
On Friday, new data showed consumer spending increased in the United States by the most in seven months in February, leading economists to raise forecasts for first-quarter growth. Meantime, financial ministers in the euro zone agreed to increase their financial firewall to 700 billion euros in a bid to stave off a new flare-up of Europe's sovereign debt crisis. Chile's IPSA increased 0.46 percent during the session, led by regional power generator Endesa Chile, up 2.7 percent.