LatAm assets muted as Asia's AI rally steals spotlight, Middle East tensions persist

Peru's sol PEN= was flat. The country's Congress approved a $2.8 billion budget expansion late on Tuesday to fund infrastructure projects, essential services and other purposes. Latin American assets were subdued on Wednesday, extending a listless run, as investors weighed escalating Middle East tensions alongside domestic political and trade developments. With AI-heavy bourses in Asia dominating headlines, LatAm assets have largely drawn attention solely as a diversification play, leaving them trading within tight ranges over the past month. "Valuations in Latin America are very low, which is why I'm optimistic. But things are really beginning to pump on all cylinders in Southeast Asia," said Steven Schoenfeld, CEO of MarketVector Indexes. The MSCI Latin American stocks index .MILA00000PUS dipped 0.1%, while the currencies equivalent .MILA00000CUS was flat. Equities in Brazil .BVSP, the region's largest economy, declined 0.4%. A Reuters report said that Brazil is bracing for 25% tariffs from the U.S. after months of largely unproductive negotiations, with an announcement expected later in the day. Meanwhile, a poll showed President Luiz Inacio Lula da Silva widening his lead over right-wing Senator Flavio Bolsonaro ahead of October's presidential election. Bolsonaro's popularity dwindled after a report linked him to a disgraced banker and his stepmother resigned from the women's wing of his party, shaking investor expectations for reforms in a country that has been reeling from deteriorating public finances and high interest rates under Lula. The Brazilian real BRL= was flat. The country's services activity fell 0.4% in May on a seasonally adjusted basis, missing economists' expectations of a 0.1% increase. In BofA Global Research's LatAm fund manager survey, 77% of respondents expected at least one interest rate cut in Brazil this year. Elsewhere, Colombia's peso COP= gained 1.1%, while its stocks .COLCAP declined 0.2%. Currencies in Chile CLP= and Mexico MXN= appreciated 0.2% and 0.3%, respectively. Chile's stocks .SPIPSA fell 0.6% as copper prices eased, while Mexico's benchmark stock index .MXX gained 0.3%. Argentine equities .MERV rose 2.2%. The war in the Middle East has also added another layer of uncertainty and tempered investor appetite. On Wednesday, the U.S. launched a fresh wave of strikes against Iran, while Tehran threatened to shut off more regional energy exports. Oil prices were slightly higher in a volatile session, reviving inflation fears and clouding the global economic growth outlook. The dollar index =USD dipped 0.5%. Data showed U.S. producer prices unexpectedly fell in June, following Tuesday's softer-than-expected consumer inflation reading, which prompted traders to trim expectations for a Federal Reserve rate hike later this month. "The renewed rise in oil prices has cast fresh uncertainty over the outlook for interest rates in EMs," said William Jackson, chief EM economist at Capital Economics, pointing to countries including Chile and Colombia. "But... there are a handful of countries where strong inflation pressures could prompt rate hikes in the coming months irrespective of developments in the Middle East."

LatAm assets muted as Asia's AI rally steals spotlight, Middle East tensions persist

Peru approves budget expansion

Latin American assets stay subdued

Brazil, Colombia, Chile and Mexico move unevenly

Middle East tensions and oil prices weigh on sentiment

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