May 22, 2006

Latin American Stocks, Currency Take Beating in Capital Flight

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(Sao Paulo and Mexico City) Most Latin American stock markets and currencies weakened sharply today as international investors fled emerging markets over worries about rising US interest rates and fears of a global recession.

By midday the Brazilian real was down 4.3 percent to 2.3 to the US dollar, as compared with 2.2 to the dollar at Friday's close.

The stock markets in Brazil, Argentina, Mexico and Colombia fell over 4 percent. Chile's IPSA stock index fell about 1.2 percent, while the Chilean peso weakened 1.5 percent against the dollar.

"It's part of a global movement away from emerging markets," said Solange Srour, who is the chief economist for Mellon Global Investments Brazil. "There's a general aversion to risk, but Brazil is in better position to weather it than many other countries."

The Latin American sell-off followed large losses in Asian and European markets earlier today.

"Emerging markets assets have had three years of exuberance, so it wouldn't be a surprise that in a period of uncertainty Brazilian assets would give back some gains," said Luiz Fernando Figueiredo, manager of the Sao Paulo-based hedge fund Maua Investimentos. "There's more uncertainty in global financial markets now due to inflation concerns, on the back of high commodities prices, and tightening cycle of interest rates in the US."

12 comments:

Anonymous said...

I think the global s**t is about to hit the fan!

historymike said...

I am not sure, anonymous. Certainly this could be a trigger toward a global depression, or it could be just a temporary correction.

The next few weeks should give us more insight.

I was most disturbed by the near-double digit losses in places like India.

Dispersal of capital around the globe makes it much more difficult for the US and the IMF to shore up national currencies, much less stem the tide in entire regions.

But - not quite time to invest in the three Gs: gold, guns, and green beans.

-Sepp said...

I'm sure there is some companies divesting from those areas before the governments decide to "own" them.

Brian said...

I agree with Sepp. These Socialist thugs sew the wind and reap the whirlwind with their "nationalization" policies.

It's time they were punished. Of course, they'll find a way to blame the U.S for their plight

-Sepp said...

I doubt that "punishment" is the answer Brian since it would only lend credence that "WE" are meddling in their affairs and are the root of all evil in the western hemisphere. If they want to start nationalizing everything, then, so be it. Foreign investment is a staple in that region and, when investors start seeing a risk that assets may be siezed at the government's whim they will all start drying up. That's punishment enough.

Brian said...

Sepp,

I agree that the punishment should come from the private sector.

in a world with so much economic interdependency, Banana Republics can ill-afford to scare off investors.

This little banana dictators will have to learn the hard way that Marxist revolutions went the way of Disco years ago.

historymike said...

One of the downsides, though, is that economic and political instability in Latin America will only worsen the illegal immigration problem here.

-Sepp said...

Funny how that works HM. Carrying a "yankee go home" sign on one day and then sneaking over the border to be one the next day.

Brian said...

Yes, Sepp, the irony is strong.

Then you have guys like Dariush who immigrate then tell us how we are screwing up the country.

Hooda Thunkit said...

I think that the last Fed rate hike triggered this.

Say what they will, but the rest of the world looks to us for their their cue as for what to do next.

Plus the new guy in the left seat (Bernake) is still getting his bearings…

-Sepp said...

Dariush isn't a bad guy. I think he's more anti-Bush rather than anti-American. The problem is that Bush keeps lending himself to it. Although we do have a segment that is apropriately called the "hate America first" crowd, I don't think Dariush completly fits. Most immigrants don't come here to bash this country when they could easily bash it from wherever they came from.

Peahippo said...

Gosh, it suuuuuure is coincidental that on the heels of the paying off of IMF loan balances, and the rise of nationalism in some South American states, that capital took this sudden flight. Hmm.

I say let it go and a cheery "good riddance" to it all. The last time capital took sudden flight from Argentina, it broke their economy as easily as it was a dried stick. Therefore, having such capital in-country in the first place is a bad idea.

The IMF and Western banks don't just loan to the elites in nations ... they are the "point of the sword" for the Western Imperial powers. IMF loans in particular are infamous for reformatting entire national economies into what amounts to economic colonies of the West. Social spending is demonized under such an economic regime.

Any nation wishing to be independent from these forces will have to shut out foreigner controlling interests one way or another. This current event is good for such independence. Now, if only the native populations can see this goal and understand that they are on their own, as they should have been all along.

BTW, Brian, "economic interdependency" is a modern myth or Imperial aim, not a reality or moral goal. If investment groups can just move billions in a couple of days, then I'd say there's more dependency going on rather than interdependency. The Argentine example shows that even nations of such size that they could be independent, are not, and they are in such a condition due to the designs of the West. The IMF is literally nothing more than outsourced colonialism ... so, instead of sending troops and managers, the modern West sends money and laws to keep a Third World nation in submission.

If anyone disagrees with what I'd said here, please get off your idiot box (i.e. computer) and fetch some books. The fraudlent and violent structure of international commerce is well enough documented in the book "Capitalism's Achilles Heel" by Raymond Baker. And before any of you rightwingnuts starts spouting off how Mr. Baker is a Liberal, he's a longtime international trader with obvious roots in fiscal and social Conservatism. (The book "When Corporations Rule the World" by David Korten is also a great source for understanding the fundamental attack of money upon people.)