May 31, 2019 / 8:45 PM / 17 days ago

EMERGING MARKETS-Latam FX, stocks fall; Mexican assets shiver under 'cold shower'

 (Updates prices; adds graphic, quotes on Mexico; recasts
throughout)
    By Aaron Saldanha
    May 31 (Reuters) - A Latin American stocks benchmark fell
and most Latin American currencies softened against the dollar
on Friday after Mexico fell in the cross-hairs of U.S. President
Donald Trump's tariffs.
    Aiming to stanch the flow of illegal immigrants to his
country, Trump on Thursday threatened tariffs on imports from
Mexico starting on June 10, starting at 5% and increasing
monthly up to 25% on Oct. 1. Mexico's deputy foreign minister
termed the threat a "cold shower".
    "Nearly 80% of Mexican exports go to the U.S," said Gabriela
Soni, UBS Global Wealth Management's chief investment officer
for Mexico. 
    The probability of tariffs ramping up to the maximum 25% was
just 20%, she said, because Mexican companies are providing
substitutes for some goods that the United States would normally
import from China, with whom Trump is engaged in an escalating
tit-for-tat tariff trade war.
    Soni said her base case - which she accorded an 80%
probability to - is that Trump will not act on his threat. In
that case the peso will still depreciate to about 20 pesos per
dollar over the next six months, due to factors such as slower
Mexican growth and fiscal deterioration. 
    MSCI's index of Latin American stocks fell
0.5%, while its Latin American currencies index
dipped 0.1%.    
    Mexican stocks slid 1.4%, largely on losses among
financials and materials, while the peso softened 2.3%.
    The move comes at a bad time for Mexico, as international
investors have already been scaling back exposure to the
country's equity market.
    Lipper estimates show U.S.-domiciled investors yanked money
out of a popular Mexico-focused ETF in each of the last
four weeks ended Wednesday, the day before Trump's threat.   
    Tremors from Trump's threat were felt in markets from Japan
to Europe, while the cost of insuring exposure to Mexico's
sovereign debt rose to a two-month peak.

    While Brazil's real firmed 1.5%, stocks on the
Bovespa fell 0.6%, weighed on by losses in the energy
sector as Brent crude futures shed 3.6%.
    Common shares and preferred shares of
state-run oil firm Petroleo Brasileiro SA (Petrobras) tumbled
1.9% and 2.3%, respectively.
    Miner Vale SA fell 2.5%, with Dalian-traded iron
ore futures having lost ground earlier in the global
day.    
    Argentina's stocks fell 1%, while the peso
weakened 0.5%. 
    Colombia's peso softened 0.4%, taking monthly losses
to about 3.4%. The country's central bank said it has suspended
its accumulation of foreign reserves so it can evaluate the
impact of dollar-buying on the peso exchange rate.
    Stocks slipped 0.7%, with oil firm Ecopetrol SA
 down 2.3%, weighed on by the softer crude futures. 
    
    Latin American stock indexes and currencies at 1949 GMT
    
 Stock indexes                                     daily %
                                       Latest       change
 MSCI Emerging Markets                    994.93      0.96
 MSCI LatAm                              2678.58     -0.49
 Brazil Bovespa                         96866.16     -0.61
 Mexico IPC                             42752.54     -1.37
 Chile IPSA                              4981.98      0.96
 Argentina MerVal                       33892.01     -1.01
 Colombia IGBC                          11991.60     -0.71
                                                          
 Currencies                                        daily %
                                                    change
                                          Latest  
 Brazil real                              3.9221      1.43
 Mexico peso                             19.5985     -2.36
 Chile peso                                709.1      0.01
 Colombia peso                           3374.37     -0.34
 Peru sol                                  3.381     -0.47
 Argentina peso (interbank)              44.7300     -0.29
                                                  
 
    
 (Reporting and graphic by Aaron Saldanha in Bengaluru
Editing by Sonya Hepinstall)
  
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