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Bolsas do an about-face
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November 11, 1998: 4:53 p.m. ET
Political concern plagues Bovespa as the Dow dissolves Mexican gains
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NEW YORK (CNNfn) - It was a day of changed minds in Latin America's major bolsas Wednesday.
Stocks in Mexico and Brazil started the day on highly positive notes, but then took a downturn. In the case of Brazil's Bovespa, the negative pull was quite strong as investors sensed there might be a dwindling of Congressional support for the government's economic reform measures. The key share index fell nearly 3 percent
Mexican shares shaved off 0.6 percent in sympathy with the declining Dow.
And in Venezuela, the bolsa closed the day off a mere fraction, or 0.1 percent.
Bovespa investors smell loss of power
Brazilian shares retreated for a second day Wednesday on concern that political obstacles could slow the passage of austerity measures and a cut in interest rates, traders said.
Sao Paulo's key Bovespa index slumped 237 points, or 2.97 percent, to close at 7,763 after gaining more than 2 percent in early trade.
A Congressional commission responsible for drawing up the final draft of social security reforms had to cancel Wednesday's scheduled meeting because not enough members showed up, sparking concern over a possible loss of support.
Investors then embarked on a wave of profit consolidation "due to the president's supposed loss of political power," a trader at a local brokerage said.
Markets hailed initial approval of the reforms earlier this month as a sign of widespread backing for President Fernando Henrique Cardoso and his fiscal plan. One member of the commission said implementation of pension reforms could now take another three weeks.
Investors' worry that any signs of receding support for Cardoso's reforms could slow cuts in interest rates and make Brazil more vulnerable to financial turmoil in the future.
"The markets aren't expecting as big a cut in interest rates tonight," said Carlos Hokama, a fund manager at Banco Credibanco in Sao Paulo. "For foreign investors the yellow light has gone up and caution is on the rise."
The Central Bank's interest rate committee meets Wednesday night to set benchmark interest rates. While markets expect a cut in the target ceiling rate, currently at 49.75 percent, their expectations were lowered by recent political bumps.
At the same time an influential politician said he will urge members of his party to oppose an increase in the financial transactions tax, another important component of Cardoso's fiscal tightening plan and one which hits international investors in Brazil's market particularly hard.
Markets worry that international investors will abandon Brazil and trade American depositary receipts in New York to avoid paying the tax.
Among blue-chip stocks, Eletrobras preferred tumbled 6.45 percent to 29 reais while Telebras preferred receipts slipped 3.76 percent to 97.20 reais.
Mexico's bolsa cedes gains
Mexican stocks shed early gains and posted a loss Wednesday, mimicking a downturn on Wall Street, traders said.
The benchmark IPC index fell 25.08 points, or 0.61 percent, at 4,117.69 on moderate volume.
In the afternoon, one floor trader said, "The market is calm ... now it is affected by New York, which turned around."
Venezuelan stocks flatten
Shares in Caracas ended the day relatively flat.
The IBC index of leading shares closed down 3.65 points, or 0.10 percent, to 3,684.05.
In related news, presidential candidate and former coup leader Hugo Chavez, who is leading in the race for the presidency but who is not favored by the Venezuelan financial community, said Wednesday that he wants to assume office on Feb. 4, 1999, the seventh anniversary of his bloody coup attempt.
Presidential elections are due to be held Dec. 6, and President Rafael Caldera had been scheduled to hand over power on Feb. 2. 
-- from staff and wire reports
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