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EMERGING MARKETS-Latam FX firms, Mexican peso hit by a slew of rating actions

Aaron Saldanha

(Recasts throughout, updates prices, adds fund manager's quote) June 6 (Reuters) - Most Latin American currencies firmed against the dollar on Thursday, with Mexico's peso proving the exception to the norm a day after ratings agency Fitch cut its debt rating on the country and peer Moody's lowered its outlook. Fitch downgraded Mexico's rating, citing risks including those posed by debt-laden state-owned oil firm Pemex, whose financial issues the agency said were exacting a toll on the prospects for Latin America's No.2 economy. "The recognition that Mexico, the sovereign, is overrated at A3 and BBB+ should not be a surprise given the policy uncertainty under the current regime, and more specifically, the more explicit support that the sovereign will likely give Pemex," said Cathy Hepworth, PGIM Fixed Income's co-head of emerging markets debt, after the downgrade. After lowering its outlook on Mexico on Wednesday, Moody's did the same on Pemex on Thursday. The peso softened 0.3%, while yields on local Mexican 10-year bonds rose about 4 basis points to 8.03%. The yield spread between those bonds and their U.S. peers widened on Wednesday, creeping toward a more than 4-1/2 month peak hit on Monday. "There is a perception that there will be a lot of forced selling if Pemex is downgraded; this may not happen. We think many crossover investors may already be positioned for a post-downgrade sell-off, and some could be waiting for a downgrade to buy Pemex," said Cathy Hepworth of PGIM Fixed Income, which manages $776 billion in assets. Mexican stocks slid 0.6%, largely on losses among financials and consumer staples, while MSCI's Latin American stocks index rose 0.5% on the back of gains among shares in index heavyweight Brazil. Shares on Sao Paulo's bourse added 1.3% on broad-based gains, as the benchmark recovered most of the ground lost in Wednesday's 1.4% slide. Brazil's real marginally firmed. Common shares and preferred shares of state-run oil firm Petroleo Brasileiro SA (Petrobras) rose 2.1% and 2%, respectively, helped by a 1.9% rise in Brent crude futures. Electric utility Eletrobras rose 2.3%, as it received the green light to start a hydroelectric plant it is the largest shareholder in. Vale SA, a minority owner, rose 0.9%. Argentina's peso firmed 0.5%, while stocks tacked on 0.9%. Colombia's peso strengthened 0.4%, aided by firmer oil futures. Chile's peso firmed modestly. Latin American stock indexes and currencies at 1902 GMT

Stock indexes daily

%

Latest changeMSCI Emerging Markets 1003.04 -0.16MSCI LatAm 2715.38 0.54Brazil Bovespa 97198.42 1.25Mexico IPC 43158.51 -0.6Chile IPSA 4924.61 -0.66Argentina MerVal 35577.75 0.86Colombia IGBC 12029.01 0.06Currencies daily

% change Latest

Brazil real 3.8780 0.42Mexico peso 19.6480 -0.38Chile peso 692.2 0.09Colombia peso 3288.48 0.46Peru sol 3.336 0.12Argentina peso (interbank) 44.9050 0.06

(Reporting by Aaron Saldanha in Bengaluru Editing by Sonya Hepinstall)