Yesterday’s 5.6 percent drop in the Dow reverberated through Latin America’s major stock exchanges. Argentina’s stock market took the worst hit, losing almost 11 percent of its value. Brazil’s Bovespa declined more than 8 percent; Chile and Peru’s markets each lost 7 percent.
Mexico’s stock market, the Bolsa, withstood the sell-off better than the other major exchanges, giving up 5.9 percent of its value.
“Black Monday,” as it is already known, was the first day for stock markets to react to Standard & Poor’s decision last Friday to downgrade US creditworthiness from AAA—the highest possible rating—to AA plus—the same rating as Belgium and New Zealand. Adding to investor worry is the prospect of the United States falling back into recession, as well as signs that the EU’s debt crisis is deepening.
Perhaps the biggest surprise is that the downgrade and stock market decline actually drove investors to buy US Treasury bonds, pushing interest rates down. The US is arguably now more of a safe haven.
Latin American markets presented their own paradox: markets nearer the US experienced smaller losses.
Sound macroeconomic conditions make Mexico a more stable country for foreign investment, even though growth projections are lower than in countries like Brazil and Peru.
Appearing on MSNBC’s “Morning Joe” just before the Dow opened New York City Mayor Michael Bloomberg quipped, “Mexico’s economy is better than ours.” I’m not sure about that. But in the current economic hurricane, Mexico may be at the eye of the storm.
