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Argentina, Brazil high inflation, energy issues could lead to sharp decline on Stockmarket

Posted by Adrian on March 6, 2008

The two powerhouse South American emerging economies, Brazil and Argentina have in a lot of ways followed the turmoil in the US markets including the now serious global inflation issue, and it appears also one of the bad habits learned or borrowed from the US federal Reserve is too play down inflation.

Any speculative ‘good’ news coming out of the US economy caused both the Brazilian BSVP index to move up 1.53% and the Argentina Merval index to jump to 2.23%. Internal country (market) speculation, in regards to BSVP index and the Merval index, is on the prospects of oil discovery in Brazil and increasing their meat export markets. But, with inflation being ignored again, or being played down (especially in regards to Argentina) higher costs for energy could be the dramatic market damper. Could a new energy crisis emerge in South America? With industries running at full steam and a looming winter coming, it appears that disputes and problems with Bolivia and it’s natural gas supply deals have already occurred, from International Herald Tribune (Feb 25th 2008  )

“Brazil has declined to cede any of its imports of Bolivian natural gas to Argentina, which is struggling to find more energy sources to avoid supply shortages that could derail its fast-growing economy.

Argentina and Brazil are facing the possibility of short-term energy crises from a lack of natural gas, which is needed to fuel industries and generate electricity for residents. Bolivia is sitting in the middle, with the region’s largest gas reserves.”

“Bolivia, which has seen a rise in domestic energy demand, has struggled to meet its contractual obligations to supply natural gas to both Brazil and Argentina. Petrobrás, the Brazilian national energy company, which has a much larger contract with Bolivia, has been unwilling to divert any supplies to Argentina because of concerns here that Brazil could face its own energy shortfalls.”

Now currently a possible boarder dispute between Ecuador and Colombia, over a military incursion by Colombian into Ecuadorian territory. With oil producing Venezuela offering military support to Ecuador. This has added now to the record oil price, now trading at $104 a barrel.

It appears that the both the Argentinian and Brazilian have overbought stock markets, that are vulnerable to market shocks – especially the Argentinian MERV index. Refer to graph below:

argstocks.gif

3 mths graph of the MERV, BSVP and the DOW. Refer to graph below (note the adjoined dips of the MERV and BSVP indices of January 21st and 23rd 2008.):

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The fall in both the MERV and BVSP on the 21st and 23rd Jan, would indicate a join at the hip; with both Brazilian and Argentinian stock markets closely trailing each other. South American countries now also seem prone to energy market fluctuations and their own geopolitical instability, combined with the US market troubles adding to a volatile South American stock market.

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4 Responses to “Argentina, Brazil high inflation, energy issues could lead to sharp decline on Stockmarket”

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