May 11, 2020 / 8:01 PM / 22 days ago

EMERGING MARKETS-Brazilian real leads Latam FX lower; Argentine peso at record low

    * Argentina extends $65 bln debt deadline to May 22
    * Brazil central bank to shower economy with money if
depression
    * Emerging economies burn through $240 bln in reserves -
BofA
    * Latam's second-largest carrier Avianca files for
bankruptcy

 (Adds economists' comments, updates prices throughout)
    By Susan Mathew and Shreyashi Sanyal
    May 11 (Reuters) - Latin American currencies weakened on
Monday, led by Brazil's real, while the Argentine peso dipped to
new lows with negotiations over a $65 billion debt restructuring
proposal extended as default risk loomed.
    Sentiment worldwide fizzled as some countries such as South
Korea and China reported a second wave of the COVID-19 disease,
while the number of new cases in places such as Brazil, Russia
and Mexico still remained worryingly high. 
    Investors fear that this would force economies back into
lockdown, intensifying economic damage and delaying a recovery
in global growth.
    The Argentine peso slid as the deadline for the debt
restructuring got extended to May 22 after an initial cut-off
passed on Friday without the support needed for a comprehensive
deal. This means the offer will expire the same day Argentina
could trigger default over a $500 million interest payment.

    "This could see the peso come under pressure and capital
controls put to the test. That would prompt the central bank to
prop up the exchange rate by selling FX reserves, triggering a
vicious cycle," said Edward Glossop, emerging markets economist
at Capital Economics. 
    Brazil's real, one of the worst performing currencies
this year in the emerging markets, fell 1.8% staying near record
lows.
    Brazilian Economy Minister Paulo Guedes on Saturday said the
central bank is likely to shower the economy with money in case
of a depression caused by the pandemic. 
    Consensus is rising that Latam's largest economy will shrink
by more than 4% this year, with interest rates and inflation
forecasts also being revised down to all-time lows.
 
    But Goldman Sachs strategists note that Latin America shows
the most value in emerging markets, given its dependence on
commodity prices - an area they expect to perform stronger in
the second half of the year.
    Leading emerging countries, including China, Hong Kong,
Brazil and Turkey, have burned through $240 billion in foreign
exchange reserves over the past two months, Bank of America
said, as central banks look to prop up their currencies and
economies in the face of COVID-19.
    Mexico's peso lost 1% with investors awaiting the
government's plans to reopen the economy this week from the
pandemic-induced lockdown. President Andres Manuel Lopez Obrador
expects to make an announcement by mid-week.  
    On Thursday, all eyes will be on the central bank's rate
meeting.  
    "The strong depreciation of the peso and the increased
uncertainty about the direction in which inflation will move in
the coming months (demand shock versus supply shock) make the
central bankers exercise caution," said You-Na Park-Heger, an
analyst at Commerzbank.
    Among stocks, notable moves were in Brazilian meat processor
 BRF SA which rallied after narrowing its quarterly
loss, while reinsurer IRB slumped on being probed on
liquidity issues.
    With airlines worldwide being among worst hit sectors by the
pandemic, Latin America's second-largest carrier Avianca
, filed for bankruptcy on Sunday, after failing to
meet a bond payment deadline.
    
    Latin American stock indexes and currencies at 1939 GMT:
     Stock indexes                Latest      Daily %
                                              change
 MSCI Emerging Markets               915.14       0.38
                                             
 MSCI LatAm                         1593.32      -1.89
                                             
 Brazil Bovespa                    79266.43      -1.24
                                             
 Mexico IPC                        37795.59       0.46
                                             
 Chile IPSA                         3802.24      -0.42
                                             
 Argentina MerVal                  38089.29      5.266
                                             
 Colombia COLCAP                    1106.02      -0.38
                                             
                                                      
         Currencies               Latest      Daily %
                                              change
 Brazil real                         5.8381      -1.71
                                             
 Mexico peso                        23.8950      -1.15
                                             
 Chile peso                           823.8       0.33
                                             
 Colombia peso                      3888.71       0.01
 Peru sol                            3.4147      -0.23
                                             
 Argentina peso (interbank)         67.3600      -0.12
                                             
 
 (Reporting by Susan Mathew and Shreyashi Sanyal in Bengaluru;
Editing by Alistair Bell and Grant McCool)
  
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