Friday, October 19, 2007

Latin America's Biggest Markets Fall on U.S. Bank News

Bloomberg - Brazilian Stocks Fall on Credit Concern: World’s Biggest Mover
El Universal (Mexico City) – Cierra a la Baja Bolsa Mexicana 3.08%

Brazil and Mexico’s stock markets both fell heavily yesterday, due in part to lower-than-expected United States bank earnings. The falls were the highest globally. The Bovespa index in Brazil, representing the most-traded stocks on the Sao Paulo market, fell 3.7% to 60,894.29. Bovespa’s fall was the most in three months. In Mexico, the Bolsa fell over a thousand points to 31,823.

The Brazilian market fell in part due to low earnings reported by U.S. banks, prompting fears that the credit market will tighten and causing investors to sell Latin American stocks. The Mexican market responded to repeated warnings from the U.S. Federal Reserve Chairman Ben Bernanke that the weakness in the U.S. financial sector will continue and the release of low earnings reports from Bank of America, among other banks. Indications of a slow-down in the U.S. manufacturing sector also hurt the Mexican exchange, as Mexican exports 80 percent of its goods to the U.S.

Leading the fall on the Brazilian market was the oil company Petroleo Brasileiro (Petrobras) and the mining company Vale. Those companies, which had been leading the market spike the past few months, fell six and four percent respectively on the day.

Meanwhile, profits at the five largest banks in the United States hit their lowest level in four years and the Dow Jones fell 370 points, marking the 20th anniversary of ‘Black Monday.’

In addition to Brazil and Mexico, the main indexes in Argentina, Chile, Colombia, Peru, and Venezuela fell. Morgan Stanley’s Latin American index reflected the malaise and dropped 3.4%

Discussion:1. Should Latin American countries impose more stringent stock trading rules in light of the recent volatility and sensitivity to the American markets?

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