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EMERGING MARKETS-Trade optimism lifts Latam assets, currency controls buoy Argentine peso

Credit: REUTERS/Marcos Brindicci

Latin American assets started the week on positive footing on Monday, buoyed by U.S.-China trade optimism, while Argentina's peso steadied after the central bank imposed currency controls following an election win by leftists.

By Sruthi Shankar and Agamoni Ghosh

Oct 28 (Reuters) - Latin American assets started the week on positive footing on Monday, buoyed by U.S.-China trade optimism, while Argentina's peso steadied after the central bank imposed currency controls following an election win by leftists.

The peso ARS=RASL closed up 0.65% at 59.6 per dollar, with the central bank clamping down on dollar purchases after center-left Alberto Fernandez clenched victory over incumbent Mauricio Macri in the presidential election.

Argentina's black market peso closed 2.03% stronger after hitting a record low of 77 per U.S. dollar earlier, while the Merval stock index .MERV and dollar bonds slid as investors fretted about the consequences for the national economy and debt burden.

Financial markets in Latin America's No. 3 economy have crashed since presidential primaries in August pointed to victory for Fernandez, raising fears of a return to populism in a country facing the risk of a deep economic crisis and debt default.

"Fernandez has pledged not to touch USD deposits in the banking system and ruled out a haircut on external debt in a future re-profiling," according to Ashmore Group weekly investor research. "Due to the weak state of the economy, we expect Fernandez to have a short window to resolve the current economic problems."

Argentina is set for talks with creditors over $100 billion in debts, with dwindling reserves and sky-high inflation. Investors will also be watching Fernandez's approach to the International Monetary Fund, which extended a $57 billion line of credit to Argentina in 2018 but has been holding off on disbursing the latest tranche of funds.

"We knew this was going to be the outcome and there wasn't much of a shock as such," said Christian Lawrence, senior FX strategist at Rabobank. "Some sort of debt restructuring will be on the cards, but don't think anyone has a rock-solid view of what's going to happen."

MSCI's index of Latin American stocks .MILA00000PUS rose 1%, boosted by gains in index heavyweight Brazil .BVSP.

U.S. President Donald Trump said on Monday he expected to sign a significant part of an interim trade deal with China ahead of schedule but did not elaborate on the timing.

"It's a classic risk on day with equities shining and emerging assets getting a boost," said Rabobank's Lawrence.

Most Latam currencies climbed higher against a tepid dollar, with the U.S. Federal Reserve widely expected to cut interest rates later this week.

Brazil's real BRL= rose 0.4% ahead of an interest rate decision from the central bank this week, when borrowing costs are expected to be cut to a record low 5%.

The Chilean peso CLP= and the Colombian peso COP= gained about 0.4%, while the Mexican peso MXN= edged slightly lower.

Mexico's debt-laden state oil firm Petroleos Mexicanos PEMX.UL reported a net loss of 87.4 billion pesos ($4.43 billion) in the third quarter but said it had cut its hefty debt load, bucking the trend of recent years.

Latin American stock indexes and currencies at 1941 GMT:

Stock indexes

Latest

Daily % change

MSCI Emerging Markets .MSCIEF

1043.16

0.71

MSCI LatAm .MILA00000PUS

2824.27

1.11

Brazil Bovespa .BVSP

108163.99

0.75

Mexico IPC .MXX

43764.78

0.87

Chile IPSA .SPIPSA

4962.34

0.37

Argentina MerVal .MERV

32753.03

-5.125

Colombia IGBC .IGBC

13202.73

-0.24

Currencies

Latest

Daily % change

Brazil real BRBY

3.9929

0.40

Mexico peso MXN=D2

19.1010

-0.25

Chile peso CLP=CL

723.05

0.48

Colombia peso COP=

3380.2

0.41

Peru sol PEN=PE

3.331

0.12

Argentina peso (interbank) ARS=RASL

59.6000

0.65

Dollar drain pnghttps://tmsnrt.rs/2A97XLT

(Reporting by Sruthi Shankar and Agamoni Ghosh; Editing by Chizu Nomiyama and Dan Grebler)

((sruthi.shankar@thomsonreuters.com; within U.S. +1 646 223 8780; outside U.S. +91 80 6749 6328))

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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