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Hard day for LATAM stocks – No country in positive territory

Ignacio Teson•Thursday, February 8, 2024•2 min read

Hard day for LATAM stocks – No country in positive territory

Argentina, Brazil, Colombia, and Mexico, the most important markets in the region, all in negative territory. Commodity prices aren’t helping.

LATAM Markets are experiencing a tough day.

With drops of up to 4%, LATAM indices face an extremely negative Thursday. The main ETF tracking Brazil, iShares MSCI Brazil (ETF), falls by 2%, while iShares MSCI Mexico (EWW) experiences a similar decline. Argentina’s MERVAL index drops by up to 4%, and Global X Colombia (GXG) declines by 0.5%

This occurs in a context where the S&P 500 remains flat, and US interest rates and the dollar are slightly up. Additionally, commodities related to Latin American exports are falling, such as corn, with the exception of oil.

The most affected stocks are Argentine and Brazilian ones. In Argentina, Banco Supervielle and Edenor lead the declines. In Brazil, Banco Bradesco experiences a 20% drop in two days after announcing lower-than-expected results.

Other notable declines include Brazilian airlines, which, in addition to falling due to daily inertia, suffer from the rise in oil prices. Azul Airlines (AZUL) drops 8% today, accumulating a total decline of 40% since November 2023.

Fuel, a significant part of airlines’ operating costs, is directly related to the price of oil. When oil prices rise, airlines’ fuel costs also increase, potentially reducing their profit margins.

Investors often perceive increases in oil prices as additional pressure on airlines’ profits, potentially leading to a decrease in the value of their stocks.

In the broader context of Latin American countries, many rely heavily on the exportation of commodities such as oil, natural gas, metals, agricultural products, and minerals.

Declines in commodity prices can reduce export revenues, negatively affecting Latin American countries’ trade balance and foreign currency reserves. This may lead to decreased foreign investment and economic slowdown, impacting regional stock market performance.

Declines in soybean prices, wheat, and other agricultural products are particularly harmful to the markets of Brazil and Argentina, as they represent their top 3 exports.

Latin America finds itself in a better economic position than it did 5 years ago; however, it has been unable to achieve sustainable growth for over a decade.

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ABOUT THE AUTHOR See More
Ignacio Teson
Economist and Financial Analyst
Ignacio Teson is an Economist and Financial Analyst. He has more than 7 years of experience in emerging markets. He worked as an analyst and market operator at brokerage firms in Argentina and Spain.
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