August 5, 2019 / 8:23 PM / 13 days ago

EMERGING MARKETS-Latam stocks, FX tumble as U.S.-China trade dispute intensifies

 (Adds comment, updates prices)
    By Susan Mathew
    Aug 5 (Reuters) - Latin American shares tanked on Monday, on
course to post their worst day in more than four months, as
heightening trade worries pushed China's yuan to its lowest in
more than a decade and sent global markets into a tailspin. 
    MSCI's index of Latin American shares sank
3.8%, while its index of the region's currencies
slid 1.6%, also set to post its biggest one-day drop since March
22.
    Beijing on Monday allowed the yuan to fall below
the key 7.00 per dollar level and later said it would stop
buying U.S. agricultural products, inflaming a worsening trade
war with the United States.
    That sent MSCI broader index of emerging market currencies
 1.2%, on track for its worst session in three
years, while the stocks counterpart dropped 3.2% to
extend its losing streak to the ninth session - the longest
since December 2015.
    Assets in Latam's commodity-linked economies slumped as iron
ore and copper dropped on the prospect of waning demand from the
world's top consumer as the currency fall makes them expensive.
Oil prices also slumped. 
    The global sell-off since last Friday was spurred by an
abrupt escalation in U.S.-China trade tensions after U.S.
President Donald Trump threatened to slap 10% tariffs on the
remaining $300 billion worth of Chinese imports. 
    Brazil's real extended losses to a sixth straight
session, down 1.8% at a two-month low, while Sao Paulo's main
stock index gave up 2.6% in its worst session since
late-March. Iron ore miner Vale slipped 4.1%.
    "The intensification of the trade war dynamic has had a more
negative impact on BRL," wrote Sacha Tihanyi, deputy head of
emerging markets strategy at TD Securities.
    "It's unlikely that until after the next iteration of the
pension reform legislative process much happens to capture the
market's imagination on BRL," he said adding that the Mexican
peso should remain buffered against market volatility by high
carry trades. 
     Brazil's lower house could start voting on a sweeping
pension reform bill on Tuesday, with the vote possibly wrapped
up by late Wednesday, the lower house leader of a key government
ally said on Monday.
    Crude exporter Colombia's peso skid to an all-time
low, while the copper slide saw Chile's peso slide to
3-1/2 year lows. 
    In Mexico, the peso fell 1.5%, while stocks in Mexico
City touched their lowest in more than eight months, with
dimming prospects for economic growth in Mexico prompting local
pension funds to shift their $194 billion holdings faster than
ever to government bonds.
    Argentina's peso fell 1.8% as uncertainty over the
country's October presidential election mounted ahead of primary
elections on Sunday.
    Market-friendly incumbent Mauricio Macri is expected to come
in behind the populist-leaning opposition candidate and
economists say market reaction will depend on the margin. 
   
    Key Latin American stock indexes and currencies at 2000 GMT:
    Stock indexes             Latest    Daily %
                                         change
 MSCI Emerging Markets          971.87     -3.18
                                        
 MSCI LatAm                    2656.41     -3.81
                                        
 Brazil Bovespa               99980.44     -2.62
                                        
 Mexico IPC                   39476.00     -1.25
                                        
 Chile IPSA                    4787.39        -2
                                        
 Argentina MerVal             40888.92    -1.137
                                        
 Colombia IGBC                12282.83     -2.17
                                        
                                                
       Currencies             Latest    Daily %
                                         change
 Brazil real                    3.9550     -1.62
                                        
 Mexico peso                   19.5996     -1.53
                                        
 Chile peso                      720.5     -1.11
                                        
 Colombia peso                 3453.45     -2.06
 Peru sol                        3.386     -0.92
                                        
 Argentina peso                45.4100     -1.63
 (interbank)                            
                                        
 

 (Reporting by Susan Mathew in Bengaluru; Editing by Sandra
Maler)
  
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