Downside Ahead For IGBVL And IPSA As Copper Unlikely To Breach Resistance

We maintain our preference for Latin American equity indices that will benefit from a continued US economic recovery, such as Mexico's benchmark IPC, to those that have a heavy exposure to lower industrial metals prices, such as Chile's IPSA, Peru's IGVBL and Brazil's Bovespa. As such, we hold a bullish view on Mexico's IPC over Chile's IPSA in our Americas Asset Class Strategy.

We expect falling industrial metals prices to weigh on the IPSA and the IGBVL in the coming weeks, reinforcing our view that the recent rally in regional equities has largely run its course. The price of three-month LME copper is approaching key multi-year resistance around USD7,000/tonne, a level we do not expect to be broken. Our Commodities team holds a bearish view on the metal in its Commodity Strategy table and forecasts lower average prices this year ( see 'Turning Bearish LME Copper', April 30 and 'Copper To Average USD6,800/tonne In 2014', May 15). As a result, we expect the IGBVL, which tracks copper prices closely, to head to support at 15,000 in the coming weeks, a 4.9% move from current levels. Indeed, the index has been heading steadily lower since bouncing off trendline resistance at 16,150. Similarly, we maintain our negative outlook on the IPSA. The index is testing support around 3,940, and we expect a break of that level to be followed by a move to the next level of support around 3,800, in light of weaker copper prices, a main Chilean export.

Weaker Copper Prices Will Dampen Sentiment Towards IGBVL And IPSA
Latin America - Price Of Copper, Peru's IGBVL Index (LHS) & Chile's IPSA Index (RHS)

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This article is tagged to:
Sector: Country Risk
Geography: Latin America, Chile, Peru

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