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EMERGING MARKETS-EM FX index hits record high, Chile's peso outperforms

Ambar Warrick and Shreyashi Sanyal
·3 min read

* Chilean economy expands in November * Mexican, Chilean stocks rise * MSCI EM FX index hits all-time high (Updates prices throughout, adds comments) By Ambar Warrick and Shreyashi Sanyal Jan 4 (Reuters) - Chile's peso outpaced its peers on Monday after economic activity was seen expanding in November, while a gauge for emerging market currencies touched a record high, marking a strong start to 2021 on optimism over an economic recovery. The MSCI's index for emerging market currencies rose 0.4%, hitting an all-time high, while the Chilean peso jumped 1% to a 17-month high after Chile's central bank said economic activity expanded in November for the first time since the coronavirus arrived in the South American nation. A surge in the prices of copper, the country's top export, made Chile's peso the only Latin American currency to gain in 2020. Copper prices are also considered a barometer of economic sentiment, given the red metal's importance in industrial activity. For the day, broader Latin American currencies rose tracking weakness in the U.S. dollar and signs of economic expansion in China, a top trade destination for most of Latin America. "Outlook for the USD remains bearish... the combination of a collapsed term premium, vaccine implementation and reflation tactics are fairly dominant forces," Mazen Issa, senior FX strategist at TD Securities, wrote in a note. Latin American currencies were also seen as primed for more upside after severely underperforming their broader emerging market peers last year. Brazil's real, which was one of the worst performing emerging market currencies last year, fell 1.5% to the dollar. Data showed the pace of expansion in Brazil's manufacturing sector decelerated in December to its slowest since July. But the reading was still in expansion territory, indicating that an economic recovery in Latin America's largest economy was still ongoing. Currencies of oil exporters Mexico and Colombia rose, tracking recent strength in the crude market, as markets bet on a recovery in demand and output cuts from OPEC. Regional stocks also rose for the day, after underperforming their emerging market peers in 2020. Brazil's Bovespa index added about 0.5%, while Chilean stocks rose 1.9%. Accommodative monetary policy and increased liquidity measures are expected to keep investors seeking yields in equities through the mid-term. Key Latin American stock indexes and currencies: Stock indexes Latest Daily % change MSCI Emerging Markets 1302.20 0.81 MSCI LatAm 2440.33 -0.47 Brazil Bovespa 119024.69 0.01 Mexico IPC 44851.73 1.78 Chile IPSA 4257.19 1.91 Argentina MerVal 50509.57 -1.4 Colombia COLCAP 1415.21 -1.58 Currencies Latest Daily % change Brazil real 5.2673 -1.46 Mexico peso 19.8970 -0.11 Chile peso 704.2 0.92 Colombia peso 3447.5 -0.96 Peru sol 3.628 -0.28 Argentina peso (interbank) 84.6900 -0.64 Argentina peso (parallel) 161 3.11 (Reporting by Ambar Warrick and Shreyashi Sanyal in Bengaluru Editing by Alistair Bell and Sonya Hepinstall)