L'Latin America is – as almost always – in a phase of great political ferment, col return of the left to power in most countries in recent years (although in Paraguay the conservatives have just won and in Peru the trade unionist Castillo has already been dismissed) and two events in particular that are marking 2023: the return of Lula in charge of Brazil andfarewell of Argentine president Alberto Fernandez, who has already announced that he will not run again in the elections next autumn. And from a financial point of view, however, what was the market response at all these events in the first quarter of the year? The stock exchanges of the main economies of the area do not record any particular jolts, apart from the paradox of the Buenos Aires stock exchange which, while the country is falling apart, continues the rally that began last year.
Brazil: honeymoon ends with Lula, Bovespa -5% from the beginning of the year
Let's start with the continent's leading economy, which also has the stock market index with the highest capitalization value: Brazil. Although the markets were pressing for the return of former president Lula, the honeymoon did not last long, demonstrating in fact that the priority was above all to kill Bolsonaro: lindex Bovespa of San Paolo had started growing in January, immediately after the inauguration of the socialist leader (and despite the dramatic assault on the institutions of Brasilia on 8 January), however running into a bearish phase in March, from which it has recovered only partially in recent weeks. The trend in this beginning of May is bearish again (the balance from January 2 says -5%): the markets fear especially the very expansive policies promises and in part already implemented by Lula, as well as growth that is restarting in slow motion and above all the great bogeyman of thetheinflation, accompanied by the now ongoing clash between the government and the Brazilian central bank, accused of delaying the cut in the interest rates.
In fact, the latter are still high, over 13%, although inflation fell below 5% in April after two years, and according to analysts it could go back up but not beyond 6%. Analysts themselves, as well as President Lula himself (who argues about this almost every day) and a large part of the business world, are clamoring for the central bank cuts rates: consensus forecasts are for a drop of around 12%, but for now the financial institution (which belongs to the Ministry of Finance and which still includes the members appointed by Bolsonaro) is resisting, claiming its autonomy with respect to the political agenda. In this scenario, Brazil is struggling to find the path of growth: the expectation of GDP increase in 2023 is just 1%, up very slightly compared to the +0,8% forecast at the beginning of the year.
Meanwhile, Brazil's economy is becoming increasingly tied to theagribusiness (which is now worth 25% of exports, compared to 6,6% in 2002, the year in which the first Lula government began) and therefore to China, which pours investments in energy and infrastructure in exchange for the very precious soybeans and also for beef and other raw materials.
As for the stock exchange, in this first window of 2023 the banks held up well, despite the Parmalat-style bankruptcy of the hypermarket chain American stores, which was feared a domino effect that would drag credit institutions into a crisis. Instead the titles banking are among the best and credit has also been shared, in truth only by public institutions, such as Banco do Brasil. However, it should be noted the IPO flop in the pandemic period: of the 65 companies listed between 2020 and 2021, many of which operate in the technology sector, only 10 are on the rise, and several of them have lost more than 80%. The blame, according to experts, is once again too high interest rates.
Argentina: triple-digit inflation, but the stock market is flying
The situation in Argentina is still very difficult. After the bizarre idea, already dated and canceled several times, to create a single currency of exchange with Brazil, Buenos Aires fails to free itself from thenightmare of inflation, which recorded an all-time high in 2022, equaling the alarming levels of the early 2000s, when there was the famous corralito crisis. On an annual basis, today, the figure rises to triple digits: 102,5%, consumer prices have practically more than doubled compared to the already dramatic scenario of 12 months ago. All while the poverty rate has exceeded 40% and the country continues to live at two speeds: those who can afford to see their salary adjusted to inflation, such as civil servants, are still able to support domestic consumption and even GDP growth, which in 2022 rose by 5,2%, even if in 2023 according to IMF estimates it will be nailed to 0,2%, before going back up to 2% in 2024.
La Buenos Aires Stock Exchange however he started 2023 well, with one growth of 39%, in the wake of an already very brilliant 2022, even if on closer inspection l'Merval index closed the last calendar year still 69% below the values of 2018. In the last period, however, Argentina, as well as Chile, benefited from the commodity boom due to the war in Ukraine: the two countries, as well as Brazil, are major exporters of raw materials and in fact mining and energy stocks have risen more than others. It cannot be excluded that the upward trend of the Buenos Aires Stock Exchange is also due to thenow certain farewell of the president Alberto Fernandez, who won't run again in October: his popularity is at an all-time low and his populist policies have never been liked by the financial community, which is therefore betting on a return of the liberals to government.
Mexico and Chile: +8% for the Mexican stock exchange, while Santiago's is equal
La Mexico City Stock Exchange, which between 2015 and 2016 had even surpassed that of São Paulo in terms of capitalization, temporarily establishing itself as the largest in Latin America, has gained about 8% since the beginning of the year, despite a slump in March and bad feelings about the decidedly too austere policies del president Andrés Manuel López Obrador, who also tried with a coup de main to change the Constitution to stand again in next year's elections, putting the country's democratic stability at risk. The referendum through which he tried to bypass his ineligibility did not pass, but he is contravening the practice forcing the appointment of his successor, to give continuity to his power.
On the other hand, the first quarter essentially closes on parity the Santiago Stock Exchange of Chile, which has generally continued its upward trend since the young socialist Gabriel Boric. Despite the latter's difficulties, especially after the rejection of the referendum that was supposed to approve the new Constitution, the market continues to give trust in an expanding country and with great potential, which has emerged well from the pandemic (GDP +2,3% in 2022), even if for 2023 the IMF forecasts a slowdown to -1,3%. In any case, this data is corrected for the better compared to the previous forecast of -1,9%. Andby 2024 the Chilean economy should start growing again at least 2,5%.
