Mexico, Brazil jump after Obama outlines investment ideas

Mexico, Brazil jump after Obama outlines investment ideas
Published: 09 December 2008

Brazilian and Mexican stocks surged Monday, propelled by gains in commodity stocks on the prospect that demand for natural resources will increase if the United States embarks on a massive infrastructure program.

Brazil’s Bovespa rose 8.3% to 38,284.91, erasing last week’s total loss of 3.4%.

Mexico’s IPC index ended 5.4% higher at 21,168.72. The index of the 35 most actively-traded stocks fell 2.2% last week.

U.S. President-elect Barack Obama on Saturday said that he planned to launch the country’s largest infrastructure program since the 1950s, when the interstate highway system was set in place. Investment in roads, bridges, broadband Internet expansion, energy-efficient systems for public buildings and other projects will create jobs and stimulate the economy, he said. Estimates for the total cost of the plan have hit $1 trillion.

The U.S. economy has been in recession since last year.

While it was "just a matter of time" before Obama detailed a public works spending program, the markets are in "a classic environment for change in economic solutions" to be well received by investors, said Geoffrey Dennis, Latin American strategist at Citigroup, in a telephone interview on Monday.

"Markets were telling us today that monetary easing, fiscal easing, or money injected into banking systems will eventually mean that the economy will start to stabilize, and people want to be on the back of that."

The largest Latin American markets tracked the higher direction on Wall Street, where the Dow Jones Industrial Average (DJI) rose 3.5% and the S&P 500 Index (RIXF) ended up 3.8%.

Dennis also credited the Latin America’s gains Monday on optimism that U.S. lawmakers will approve emergency loans for General Motors Corp.(GM), Ford Motor Co.(F), and Chrysler LLC, as well as the weak performance of regional indexes last week.

In Mexico, shares of Cemex(CX), the largest cement provider in the U.S., leaped 27%, their highest percent spike since 1993.

Obama’s stimulus plan could increase total U.S. cement demand by 11% from 2007, and Cemex accounts for roughly 14% of total U.S. production capacity, said Deutsche Bank analyst Dan McGoeyin a note.

He said that Cemex’s US earnings before interest, taxes, depreciation and amortization could benefit by 15% to 25% from the program, and its consolidated EBITDA could increase between 3% and 4%.