Morgan Stanley Dean Witter "Latin America Strategy: Oil - A Slippery
Slope" by Ian Laming US$35–40 oil is not good for Latin markets. The
negative global side-effects of oil at US$40 would likely more than
offset the positive boost to Latin America's trade and fiscal
accounts. Positive - Latin trade and fiscal benefits and some earnings
gains. Latin America exports 4.4 million barrels per day of oil. At
US$40 oil (versus US$20) the Latin trade account benefits by 2% of
GDP. Mexico and Venezuela also get a fiscal benefit of 0.7% and 6.4%
of GDP. US$40 oil would be good for earnings at Tamsa (TAM, US$16.75,
Strong Buy), Copec (US$3.96, Not Rated), Petrobras (PETR4.SA,
US$27.89, Outperform) and Siderca (ERC.BA, US$2.35, Outperform) (which
together represent 11.3% of MSCI Latin America Free). Negative -
slower global GDP, more U.S. dollar risk. Dick Berner, our U.S.
economist, sees slower U.S. growth and a higher U.S. current account
deficit if oil stays at US$35. It is hoped that petrodollars will be
recycled into dollar-based assets. Negative - downward revisions to
global earnings growth. We're already seeing oil-related profit
warnings in the U.S. Richard Davidson sees European earnings growth
falling from 11.5% in 2001 to 6–8% if oil averages US$35 next year. If
developed markets struggle, Latin multiples will contract. Negative -
heightened political tension, especially in Mexico as the debate rages
about how to spend the surplus. Steve Roach highlights the risks
surrounding U.S. and European politics, and a possible backlash
against globalization. Negative - capital flows threatened. Latin
America has funded itself through foreign direct investment and M&A
activity. These flows are more resilient than bank/trade finance, but
they're still vulnerable if the multinationals' profits come under
pressure. Oil prices should fall in early 2001 - so I'm fairly
relaxed. I don't like US$35 oil, but I think it will fall. As such,
I'm not inclined to change my allocation. I still have 6% cash for
now.
_______________________________________________
Marxism-Thaxis mailing list
[EMAIL PROTECTED]
To change your options or unsubscribe go to:
http://lists.wwpublish.com/mailman/listinfo/marxism-thaxis
