Greed Returns After Fear Spell

LatAm debt and equity markets have rebounded in tandem with global stocks and the mood is brighter after the storm. The Bovespa gained 3.12% to 54,572 while Mexico’s Bolsa rose 2.20% in Monday’s relief rally. Analysts saw the dip as a buying opportunity after months of overstretched valuations. “Fortunately, dedicated investors are stepping into the fray, buying up assets across the board,” says BCP, which is bullish overall on the commodity producer story. “Although there are concerns about the ongoing crisis, there has been no evidence of divestitures by dedicated accounts. We continue to see enormous value in the asset class, with unique buying opportunities in Argentine assets and local currency products,” it adds. However, Merrill Lynch for one sees more bloodletting in LatAm equity, and describes Brazil as a crowded trade. “We expect more downside. Technicals [and] sentiment suggest [it is] too soon to call the lows. Markets may be forced to re-price global growth lower,” says Merrill in a note on EM equity in general. After the correction, there was bound to be some short covering following a bearish overshoot. More downswings look likely short term and this week is heavy on US data releases that will keep participants nervous. Investors should remain cautious until the storm has fully passed. Companies and governments looking to price deals will likely have to wait.