October 9, 2018 / 3:35 PM / 7 months ago

EMERGING MARKETS-Brazil, Argentina buck slump in emerging markets

    Oct 9 (Reuters) - Brazil's real firmed for a seventh
straight session on Tuesday, buoyed by optimism over a
market-favorable outcome to its presidential election, while
implementation of economic reforms in Argentina strengthened its
    This was in contrast to markets worldwide, which have been
hit by risk-off sentiment after worries over Italy's finances
and rising Sino-U.S. trade war fears sent U.S. Treasury yields
soaring, boosting demand for the dollar.
    Further souring sentiment, the International Monetary Fund
cut its 2018 and 2019 global growth forecasts, noting that the
susceptibility of emerging markets to large global shocks has
    A move to safe-haven assets has caused capital to flow out
of riskier emerging market assets and analysts are increasingly 
warning of this sentiment catching up with the rally in Latin
American markets.
    Brazil's real firmed 1 percent on continued euphoria
after a surprise strong lead for market-preferred presidential
candidate Jair Bolsonaro in the first-round vote over the
weekend raised hopes of him pushing through much-needed economic
    But "the real's gains are unlikely to be sustained," said
Win Thin, global head of emerging market currency strategy at
Brown Brothers Harriman.
    "Markets are getting a little too optimistic (after Sunday's
vote result), but the rest of the emerging markets are still
lower," he said, adding that he did not think Brazil would be an
   Analysts at Rabobank added that "markets could be false
starting and underestimating the execution risks for the key
fiscal reforms. In case of frustration, this initial optimism
could give way to a deterioration in market conditions and
economic expectations." 
    The Bovespa stock index rose after having dipped 
early in the session. Gains were led by iron ore miner Vale
, which rose 1.2 percent, in tandem with higher iron
ore prices. 
    Argentina's peso sustained its gains from last week, 
after the government and central bank began to implement
economic reforms mandated by the IMF when it extended a funding
facility to support the inflation-wracked economy. The currency
has lost half its value against the dollar so far this year.   
    "The peso is due for a couple of good days. It's clawing
some ground back on limited good news," Thin said. 
    The MerVal stock index, however, fell more than 1
percent, with losses broad-based as investors took profits after
strong gains in the previous session.
    Mexico's peso weakened and stocks fell for a
second straight session, in line with the broader market.
    Key Latin American stock indexes and currencies at 1458 GMT:
 Stock indexes                            Daily %    YTD %
                                Latest     change   change
 MSCI Emerging Markets           995.50     -0.53   -14.07
 MSCI LatAm                     2748.02      4.37    -2.83
 Brazil Bovespa                86281.07      0.23    12.93
 Mexico IPC                    48194.77      0.21    -2.35
 Chile IPSA                     5320.55     -0.13    -0.13
 Argentina MerVal              30028.86      -1.7    -0.12
 Colombia IGBC                 12483.59      0.47     9.79
 Currencies                               Daily %    YTD %
                                           change   change
 Brazil real                     3.7379      0.75   -11.36
 Mexico peso                    18.9944     -0.30     3.71
 Chile peso                       682.7     -0.13    -9.97
 Colombia peso                  3054.63     -0.37    -2.38
 Peru sol                          3.33     -0.18    -2.79
 Argentina peso (interbank)     37.1200      1.29   -49.89
 Argentina peso (parallel)           37      2.03   -48.03

 (Reporting by Susan Mathew in Bengaluru; ; Editing by Dan
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