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Latin American Stocks Post 12 Pct Gain in 2010
 Michael O'Boyle - Reuters
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January 02, 2011
Mexico City - Mexican stocks rose to a record high on Friday as investors bet improving growth in the United States will support local exports, capping a strong year for most of the region's markets.
Gains in Mexico, the only major Latin American market open on Friday, lifted the MSCI Latin American stocks index 0.3 percent, on track for its fourth straight session of gains.
The MSCI index is set to post a 12 percent gain in 2010. Analysts expect U.S. factory survey data due next week could back views that the American economy is growing faster than expected and give Latin American markets a good start to 2011.
"The expectations are growing that stronger U.S. growth will help us as well, There is a lot of optimism about 2011," said Carlos Alonso, a trader at brokerage Interacciones in Mexico City.
Mexico's IPC index rose 0.4 percent, lifted by a 2.25 percent gain in miner Penoles. The IPC has jumped about 19.5 percent during 2010 and been consistently hitting record highs since September.
Latin America's smaller markets in Chile, Argentina and Peru outpaced gains of both Brazil and Mexico in 2010, with Peru jumping 64 percent as record metals prices lifted mining shares.
Brazil's Bovespa edged up only 1 percent in 2010, hampered by uncertainty about Brazil's presidential election and dilution from the world's biggest public offering by state-run oil firm Petrobras. But with those concerns gone, fund managers say Brazil could perform better in the new year.
BRAZIL GROWTH, MEXICO JITTERS
William Landers, a fund manager at BlackRock in New York, noted that Brazil's Bovespa, BVSP is trading at 10.5 times 2011 earnings estimates. Mexico, by comparison, is trading at around 14 times next year's earnings.
"Brazil is one of the cheapest markets in the world, which I do not think is warranted anymore, given that the country was able to prove itself through the tough times in 2008 and early 2009," said Landers. He manages 10.5 billion in Latin American stocks and recently picked up more shares of Brazilian homebuilders and banks.
Francisco Cataldo, retail strategist at brokerage Agora, expects the Bovespa to gain 24 percent in 2011 as rising wages support shares linked to domestic consumer demand.
"Despite the fact that we expect slower growth for the economy, companies with greater exposure to the domestic economy are still our favorite," Cataldo said.
But some analysts and investors are getting worried that low interest rates in major economies like the U.S. are driving investors to bid up emerging market assets beyond their fundamental growth prospects.
Mexican and Colombian stocks are trading at record highs despite a U.S. recovery that is middling at best, with unemployment still high. The U.S. is the top trading partner for the two nations,
There was a scramble this week from some investors to protect their positions in a fund that tracks Mexican equities in case of a correction in January.
Frederic Ruffy, options strategist at New York-based website WhatsTrading.com, said volume in bearish bets on a popular Mexican exchange-traded fund spiked Tuesday to what he believed was the highest level since March 2009.
The price of iShares MSCI Mexico Index fund has rallied 27 percent since September as investors bet U.S. stimulus plans would lift Mexico's economy.
After the sharp gains, put option contracts that pay off if the ETF falls more than 10 percent by a Jan. 21 expiration date were among the most popular this week.
"People who have a major investment in Mexican equity positions are initiating hedges against their long holdings to avoid major downside losses," said TD Ameritrade chief derivatives strategist Joe Kinahan.
About 34,000 EWW puts and 3,669 calls traded on Tuesday, about 3.6 times the combined average daily volume, according to New York-based options analytics firm Trade Alert.
"This confirms my view that the Mexican market has gotten too expensive," said Interacciones' Alonso. "I am worried we could see a correction because prices have been inflated by all this global liquidity."
Still, despite the risk of a correction, Interacciones still expects he IPC to gain 12 percent in 2011.
(Additional reporting by Doris Frankel in Chicago and Elzio Barreto in Sao Paulo; editing by Jeffrey Benkoe)
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