October 28, 2019 / 8:05 PM / 17 days ago

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

 (Updates market prices)
    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 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 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 rose
1%, boosted by gains in index heavyweight Brazil.
    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 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 and the Colombian peso gained
about 0.4%, while the Mexican peso edged slightly lower.
    Mexico's debt-laden state oil firm Petroleos Mexicanos
          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                1043.16          0.71
 MSCI LatAm                           2824.27          1.11
 Brazil Bovespa                     108163.99          0.75
 Mexico IPC                          43764.78          0.87
 Chile IPSA                           4962.34          0.37
 Argentina MerVal                    32753.03        -5.125
 Colombia IGBC                       13202.73         -0.24
                                                           
           Currencies                Latest      Daily %
                                                  change
 Brazil real                           3.9929          0.40
 Mexico peso                          19.1010         -0.25
                                               
 Chile peso                            723.05          0.48
 Colombia peso                         3380.2          0.41
 Peru sol                               3.331          0.12
 Argentina peso (interbank)           59.6000          0.65
                                               
 
    

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