Latin American ADRs' Heatmap: Weekly Update

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Includes: AMX, ARCO, ARGT, ASR, AVH, BAK, BRFS, BSMX, CBD, CIG, CNCO, CPAC, CPF, CRESY, EC, EPU, EWW, EWZ, FBR, FMX, GGAL, GOL, GRAM, GXG, ILF, ITCB, LFL, LND, NTL, OMAB, PBR, SBS, SCCO, SIM, SQM, TS, VALE, VCO, VLRS
by: LATAM PM

Summary

Brazil's EWZ up 2.6% continues uptrend and becomes best 6-Month performer in our sample.

Mexico's EWW up 1.4% as IMF improves GDP growth outlook.

Divestiture rumors and IMF upward revision to GDP boost Brazilian stocks.

  • Stock Top Gainers: GOL +13.3%, CIG +7.5%, SBS +7.0%, CRESY+6.7% and BAK +5.9%.
  • Stock top losers: NTL -10.6%, TS -5.5%, AVH -3.9%, GGAL -3.7% and PAM -3.5%.

We will provide you with a weekly update and some basic analysis on what is happening in our all-LatAm sample: ADRs - or at least the most traded ones and country ETFs. Comments are based on closing prices for the previous week (i.e., Friday, July 15, 2016).

Main LatAm markets continue rally as IMF revises upward GDP growth

The main LatAm equity markets closed higher, Brazil's EWZ (NYSEARCA:EWZ) led gains increasing 2.6% followed by Chile's ECH (NYSEARCA:ECH) up 2.0% and Mexico's EWW (NYSEARCA:EWW) up 1.4%. During the week, the IMF revised upward GDP growth estimates for Mexico and Brazil while expecting lower global growth.

On the Flip side, Colombia, Argentina and Peru's ETFs declined 0.7%, 0.4% and 0.3% respectively.

The ILF (NYSEARCA:ILF) closed 2.2% higher, 150 bps above the S&P's 0.7% increase. The ILF's 1-Month performance accumulates an 11.7% return. ILF's weekly traded volume continued to fall.

ILF Chart

ILF data by YCharts

Brazil continues uptrend and becomes best 6-Month performer in our country ETF sample

Brazil's EWZ closed 2.6% up last week as IMF improves growth prospects and as rumors abound about asset divestitures and new investors entering stocks. The EWZ now has the best 6-month performance across our country sample, the ETF is up a stunning 81.7% in that period and 12.5% up in a 1-year time frame.

Gol (NYSE:GOL) posted the largest gain up 13.3% followed by CEMIG (NYSE:CIG) up 7.5% and SABESP (NYSE:SBS) 7.0% up. Only 4 out of our 22 Brazilian ADRs sample ended in the red, posting small losses, Vale (NYSE:VALE) -0.9%, CBD (NYSE:CBD) -0.3% and FBR (NYSE:FBR) -0.3%.

The IMF improved outlook for Brazil. The IMF increased by 50 bps its 2016 and 2017 GDP growth estimates to -3.3% and +0.5% respectively. The Fund sees consumer and business confidence to have bottomed and expects higher growth with 1Q16 contraction lower than expected.

CEMIG ended the week 7.5% up as it may sell its stake in LIGHT. Rumors continue about a proposal of Equatorial to acquire LIGHT, in which CEMIG has a 32.6% stake valued at BRL 970 million.

Braskem (NYSE:BAK) ended the week 5.9% up with high volatility. During the week, Odebrecht announced it pledged a stake in Braskem's shares as credit collateral to complete its debt restructuring process.

Vale declined 0.9% as production numbers remained weak. Coal and pellets production declined 25.2% YoY and 17.9% YoY respectively, production was affected by indirect factors such as geological instability and environmental issues.

CPFL Energia (NYSE:CPF) edged up 0.9% on a rumor of a transaction at premium. The rumor is that stakeholder pension fund Previ is weighing to accept an offer from the Chinese State Grid for its 29.4% stake in CPFL at a roughly 11.0% premium to market price.

BRF (NYSE:BRFS) ended the week 2.2% up as it may IPO a division. Word on the street is that the company may IPO its Sadia Unit in 2017 with potential proceeds of up to $1.5 billion.

Petrobras (NYSE:PBR) posted a 4.1% weekly gain as asset divestiture continues. PBR is weighing offers for its fuel distribution subsidiary, BR Distribuidora, and may consider sharing control to get a better deal.

Marketing responsible for Rousseff's campaign admitted they received funds illegally. The couple changed their original statement and now accepted to received $4.5 million illegally.

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Mexico's EWW up 1.4% as IMF improves GDP growth outlook

The EWW ended 1.4% higher with 10 out of 12 of the ADRs in our Mexican sample posting weekly gains. Airports and airlines posted strong weekly returns.

Grupo Aeroportuario del Centro Norte (NASDAQ:OMAB) led gains increasing 4.8% followed by Femsa (NYSE:FMX) up 4.3% and Volaris (NYSE:VLRS) up 3.8%. Simec (NYSEMKT:SIM) and Banco Santander Mexico (NYSE:BSMX) were the only losers, down 2.7% and 1.1% respectively.

IMF improves outlook for Mexico. The IMF improved its 2016 growth estimates for Mexico by 10 bps to 2.5% and kept unchanged 2017's prospects at 2.6%.

América Móvil (NYSE:AMX) edged up +0.7% despite intense competition. AT&T could bring 5G technology to Mexico before AMX and Telefonica and as soon as 2017.

Grupo Aeroportuario del Sureste (NYSE:ASR) closed the week up 3.1% on solid 2Q16 earnings. Revenues increased 16.7% YoY boosted by passenger traffic growth of 5.4% and non-aeronautical revenues growth of 11.7%. Strong non-aero revenues were supported by positive FX effect and terminal expansion. EBITDA was 18.4% YoY up to a 71.8% margin and earnings were 18.3% up YoY.

Bidding process of the new Mexico City airport terminal is underway. The first phase of the project is expected to be completed in 2017 and entails an investment of MXN 11.0 billion.

Automotive sector remains solid. AMDA increased its 2016 auto sales growth estimate by 100,000 units to 1.55 million vehicles. During the week, automotive sector's companies reported strong 2Q16 earnings, RASSINI's bottom line increased +52.3% YoY and GISSA posted a +79.1% YoY earnings growth.

Inflation starts to pick up. Bi-weekly inflation in July increased 0.28% MoM to an annual inflation of 2.72%, the highest reading in four months, as regulated prices and energy costs increased. We wrote a note on the expected uptrend of inflation: Mexico's Understated Inflation may Break Loose.

Pension funds' AUM posted 1.1% MoM gain in June. The Funds showed a positive performance from gains in corporate and government bonds as well as in domestic and foreign equities. The ratio of foreign to domestic stocks decreased 24 bps to 1.7x.

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Chilean ETF up 2.0%

ECH closed 2.0% up, being the 2nd-largest winner in our LatAm country sample. Cencosud (NYSE:CNCO) led gains posting a +3.7% weekly return, followed by Corpbanca (NYSE:ITCB) +3.6% and Concha y Toro (NYSE:VCO) +3.4%. Only SQM (NYSE:SQM) and Endesa (EOSA) posted weekly declines down 2.7% and 0.6%.

LATAM Airlines (NYSE:LFL) increased 2.4% as the company advances on Qatar Airlines deal. LATAM Airlines scheduled an extraordinary shareholder´s meeting for August 18, 2016 to vote on the sale of a 10% stake to Qatar Airlines.

SQM (NYSE:SQM) decreased 2.7%, as the expected date for a solution on legal proceedings is extended. Proceedings regarding the Atacama salt field are now expected to reach a final solution by 2017 vs. previously expected by year-end.

Insurance companies and pension funds to invest in infrastructure. The Chilean Minister of finance expects that a bill that will allow insurance and pension funds' companies to invest in infrastructure projects will finally be approved by the senate. The bill aims to reactivate the economy through higher investment in infrastructure and at the same time to offer investors options amid low yield environment.

Pension funds' AUM posted 1.8% loss in June. The funds showed a negative performance affected by foreign investments. Exposure to Fixed income increased 200 bps to 66.2% of AUM. Exposure to local equities increased 20 bps to 7.8% of AUM with the highest increase in the Services sector and the largest decline in Basic Materials.

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Argentina ETF down 0.4%

ARGT ended the week 0.4% lower with 10 out of 16 stocks from our sample closing in the red.

Nortel (NYSE:NTL) extended losses posting the greatest weekly loss of our sample of 10.6%, followed by Tenaris (NYSE:TS) -5.5% and GF Galicia (NASDAQ:GGAL) -3.7%. Cresud (NASDAQ:CRESY), Arcos Dorados (NYSE:ARCO) and BrasilAgro (NYSE:LND) posted the largest gains of our Argentinean sample up 6.7%, 5.3% and 5.1%.

Economic activity declined 0.9% YoY in 2Q16. The Central Bank sees inflation well anchored at 1.5% MoM by year-end and weights rate cut as current interest rate stands at 30.25%.

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Andean markets adjust downwards

Colombia's GXG (NYSEARCA:GXG) led losses declining 0.7%. Avianca (NYSE:AVH) fell the most in our Colombian sample losing 3.9% followed by Ecopetrol (NYSE:EC) -3.7%.

The Peru fund, the iShares MSCI All Peru Capped ETF (NYSEARCA:EPU), closed the week 0.3% lower with 4 out of 5 ADRs in our Peruvian sample closing down. Cementos Pacasmayo (NYSE:CPAC) declined 2.2% and Graña y Montero (NYSE:GRAM) -1.2%.

Southern Copper Corporation (NYSE:SCCO) declared $0.05 p/share quarterly dividend. The dividend is payable on August 25 and the record date is August 11.

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Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.