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U.S. Markets Extend Gains; Grupo Sura Shares Drag Down Colombia’s COLCAP

The World Bank has warned that the global economy faces stagflation, when high inflation is mixed with weak or practically zero growth

Grupo Sura
June 07, 2022 | 05:45 pm

A roundup of Tuesday’s stock market results from across the region

🗽 On Wall Street:

U.S. stock markets extended Monday’s gains and the three main indices closed higher on Tuesday, amid investors’ hopes that the Federal Reserve will manage to control inflation without causing a recession in the United States.

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The S&P 500 advanced 0.95%, while the Dow Jones Industrials gained 0.80% and the Nasdaq Composite (CCMPDL) rose 0.94%.

The stock markets managed to recover from the risk sentiment generated by the World Bank’s pessimistic forecasts and the fall in retail giant Target’s (TGT) shares.

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The retailer dragged down the performance of the consumer discretionary sector, after the company cut its earnings outlook for the second time in three weeks. Opportunity buyers also helped the performance of the bourses, according to Edward Moya, an analyst at Oanda.

“Despite all the pessimism out there, some investors are finding stocks attractive now that the U.S. is unlikely to go into recession this year or next,” he said.

🔑 The Day’s Key Movements:

The World Bank set alarm bells ringing and warned about the possibility of stagflation in the economy, a phenomenon that occurs when high inflation is mixed with weak or practically zero growth.

In its updated economic projections, the organization reduced its global growth estimate for this year to 2.9%, compared to the January forecast of 4.1% and the April estimate of 3.2%. “The world economy is once again at risk,” said the organization’s president, David Malpass, in the foreword to the most recent edition of the World Economic Outlook.

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The organization explained that the reduction in its forecasts is due to higher energy and food prices, disruptions in supply chains caused by Russia’s invasion of Ukraine and higher interest rates by central banks.

“You face high inflation and sluggish growth at the same time. Even if a global recession is avoided, the pain of stagflation could persist for several years unless major increases from the supply side are put in place,” Malpass added.

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🥇 Latin America’s Leader:

Latin American stock markets had a mixed performance in the session, on a day in which the Argentine stock market rebounded after being the worst performer among its peers in the region on Monday.

The Merval (MERVAL) rose more than 0.5%, thanks to the performance of Cresud (CRES), Loma Negra (LOMA) and Telecom Argentina (TECO2) shares.

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Gains were also seen in the Mexican stock market, although the S&P BMV/IPC (MEXBOL) had a mixed performance during the day. In the end, the indicator closed with gains and reached a rise of almost 0.15%.

The performance of the materials, healthcare and industrial sectors boosted the market.

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📉 A Bad Day:

The Colombian stock market had the worst performance in the region on Tuesday, with the COLCAP index dragged down by the finance, public services and materials sectors.

The Colombian stock market was also affected by the negative performance of shares of Grupo Sura (GRUPOSUR), which had been trading at record highs since last week. The share of the financial group, which has been at the center of the takeover bids launched by the Gilinski Group, slumped 21%.

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Much of the stock’s performance in recent weeks was thanks to Gilinski’s purchases in the market to win a third seat on the company’s board of directors, which will meet next week.

Colombian regulations allow the Gilinskis to buy shares as long as the amount to be acquired is less than 4.99% of the company.

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Brazil’s Ibovespa (IBOV) also recorded losses as attention is focused on the government’s package of measures to reduce fuel prices, which may ease pressure on inflation, but involves a large fiscal risk.

🍝 For the Dinner Table Debate:

Not long ago, gambling was illegal in Caracas. Former president Hugo Chavez had banned casinos saying they caused social degeneration comparable to “prostitution, vice and drugs”. Those days are gone, and which is clear to anyone visiting Las Mercedes, a neighborhood east of downtown where the new Humboldt casino is located.

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The neighborhood’s transformation follows a radical change by President Nicolás Maduro, who has loosened restrictions on businesses, as well as controls and price regulations. He even eliminated the ban on casinos last year.

The change in Las Mercedes is largely due to two figures, Ecuadorian economists Patricio Rivera and Fausto Herrera, who worked for Rafael Correa, former president of Ecuador.

The duo have been advising the Maduro administration behind the scenes since 2019 and have pushed for U.S. dollar adoption, public deficit reduction and flexibility for the private sector.