JPMorgan downgrades Mexican stocks, ups rating on Brazilian equities
By Siddarth S
March 10 (Reuters) - J.P.Morgan on Monday downgraded Mexican stocks due to slower economic growth and U.S. tariffs, while taking a bullish stance on Brazilian equities, citing the potential end of the interest rate hiking cycle and boost from China's stimulus measures.
The Wall Street brokerage raised Brazilian equities to "overweight" from "neutral", and cut Mexican stocks to "neutral" from "overweight".
MEXICAN EQUITIES STARING AT TARIFF TUSSLE, GDP SLOWDOWN
"What is bothering us most on Mexico is the very steep growth slowdown, which is likely to bring GDP to a halt, at least in the first half of the year," JPM said.
Last month, data showed, Mexico's economy shrank in the fourth quarter for the first time in over three years, with the central bank expecting at best lackluster growth this year and economists seeing stiff risks ahead, including trade tensions.
U.S. President Donald Trump's new 25% tariffs on imports from Mexico and Canada took effect on Tuesday, along with fresh duties on Chinese goods. However, two days later, he exempted many imports from Mexico and some from Canada for a month, the latest twist in a fluctuating trade policy.
BRAZILIAN EQUITIES LOOKING ATTRACTIVE
"Brazil might be closer than was expected to end of hiking cycle, which we think is a very important trigger for equities," said JPM, adding that China's indication of further stimulus measures last week could further aid Brazilian stocks.
Brazil's central bank is to deliver a third consecutive 100-basis-point increase to the benchmark Selic rate in its policy meeting later this month, taking it to a more than eight-year high of 14.25%.
"However, it is well possible that one could see a pause after that (referring to the March meeting)," JPM added.
U.S. President Donald Trump's trade war with China will benefit Brazil, the world's largest exporter of soy, cotton, beef and chicken meat, and is expected to ship more to China as businesses there seek tariff-free imports.
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