Lower Interest Rates Cause Index to Rise

In Brazil and Mexico, the prospect of lower interest rates has caused benchmark stock indices to rise.

 “The prospect of lower rates is boosting growth expectations,” Alvaro Bandeira, a partner at Rio de Janeiro-based Agora Senior Corretora, said.

 “Growth translates into corporate profitability.”

 As of yesterday morning, the Bovespa Index had risen 168.73. The Bovespa Index is Brazil’s index of the 57 top traded stocks in the Sao Paulo stock exchange.

 There was a rise in Mexico as well, as the Bolsa rose 140.19.

 It is suspected that bankers in Brazil will be lowering benchmark interest rates. This is the first time in 17 months that interest rates will have been lowered.

 Brazil’s economy has been looking brighter lately, especially after a growth of almost four percent in the second quarter of the year.

 Mexico has already lowered benchmark lending rates and will be doing so again this month. Inflation has slowed and therefore lending rates will be cut to 9.25%.

 “The gains mostly reflect expectations of more rate cuts in the months ahead,” says Carlos Gonzalez, an equity strategist with Ixe Grupo Financiero SA in Mexico City.

 Indices have also risen in other parts of the region, as Colombia, Chile, Argentina and Venezuela have all seen an increase.

 “In a scenario of lower rates the most obvious sector to gain are the ones linked to consumption,” Noriko Yokota, fund manager at ABN Amro Asset Management, said.

 There are a few stocks that are making major gains:

 America Movil has risen 1.4% after experiencing a fall of 2.4%.

 Usimanas, which is the number one provider of steel to the car industry in Brazil, rose 1.5%, while Brazil’s largest retailer, Cia. Brasileira de Distribuicano Grupo Pao de Acucar, rose 0.7%.

 Petroleo Brasileiro SA has experienced a 0.7% increase, thanks in part to oil price assumptions.

 All things considered, now may be an opportune time to consider investing in Latin America.