US Slide Whacks LatAm Stocks, FX

LatAm is taking a beating in sympathy with plummeting US stocks and emerging markets are on edge after the US bailout was rebuffed at Capitol Hill. Brazil’s Ibovespa tumbled more than 13% to 43,766 before bouncing to finish at 46,028, still a hefty 9.36% loss for the day. According to wires, this was the sharpest decline in more than a decade, and the BRL meanwhile slid 5.6% to 1.964/USD. Other regional stocks and FX were also pummeled, including Mexico, whose bolsa slid to 23,789 before ending the session at 23,955, a 6.40% loss on the day, extending a bear trend. The peso was meanwhile trading on the weak side of MXP11/USD and the Dow Jones shed almost 7% amid a sharp uptick in volatility. As secondary markets get increasingly technical and in some cases, disorderly, fundamentals go out the window and more downside looks likely. A relief rally is possible if/when the rescue package is approved, but as wilting developed world demand dents commodities and begins to infect Asia, the resilience of LatAm is called into question. “Even a recovery out of a bill approval will reveal to be temporary, since the economy is just starting to be affected,” says Rogerio Chequer, principal at US-based hedge fund Atlas Capital Management. “The long term prospects for emerging markets are still constructive, but we have a very tough patch ahead of us,” adds Chequer. According to the investor, LatAm will not be immune to deleveraging and economic slowdown, and his shop has a very bearish short term view. “The financial crisis is just now starting to affect the real economy and the US consumer, who is still leveraged,” Chequer adds. Expect further shadowing of US markets by LatAm, as well as heightened risk aversion.