(Reuters) – JPMorgan upgraded Mexican equities to “obese” from “impartial” on the again of sturdy U.S. progress, however reduce Brazilian equities citing slower progress in China amid rising pressures from President-elect Donald Trump’s tariff coverage.
“Good US progress continues to assist Mexican customers via remittances, on the similar time {that a} weaker MXN will increase the buying energy of those {dollars},” mentioned JPMorgan strategist Emy Shayo Cherman.
“There’s a fairly excessive correlation between Mexican and US industrial manufacturing,” added Cherman in a be aware dated Tuesday.
J.P.Morgan downgraded Brazilian equities to “impartial” from “obese.”
Weaker progress in China, the world’s second largest financial system might damage Brazil via decrease commodity costs, given the Latin American nation is a significant soy exporter.
Trump, who takes workplace on Jan. 20, mentioned he would impose a 25% tariff on imports from Canada and Mexico till they clamped down on medication and migrants crossing the border. He additionally outlined “an extra 10% tariff, above any further tariffs” on imports from China.
Financial coverage outlook by the central banks of each international locations might additionally impression fairness markets, JPMorgan mentioned. Brazil is anticipated to increase price hikes into 2025, which might damage company earnings progress, whereas Mexico’s central financial institution is projected to proceed easing going into subsequent 12 months.
Latin American fairness markets have underperformed this 12 months. In greenback phrases, Brazil’s MSCI index has stumbled 23% for the reason that begin of the 12 months, whereas peer Mexico has worn out greater than 28% That compares to a greater than 6% achieve within the wider MSCI rising market fairness index.
“We give Mexico the advantage of the doubt, however will likely be carefully monitoring developments, particularly on the institutional reform facet, which stays the important thing danger,” J.P.Morgan added.
