Bloomberg News

Buy Real Versus Chilean Currency to Hedge Downturn, Moran Says

July 06, 2012

Investors who expect the global economy to keep slowing may profit by selling the Chilean peso and buying Brazil’s real, Mike Moran, a strategist at Standard Chartered Plc in New York, said yesterday in a phone interview.

The Chilean peso appreciated to a six-year high against the euro today on a closing basis, indicating the Andean currency, which closely tracks the country’s main export, copper, may be overvalued, Moran said. Colombia’s peso rose to a 10-year high against the euro today.

Moran was the top forecaster of Latin American currencies in the 18 months through December 2011, according to Bloomberg rankings. He has an overweight recommendation on the Peruvian sol, an underweight on the Chilean and Mexican pesos and market- weight recommendations on the real and the Colombian peso.

On Chile’s Economic Risk:

“As a small, open economy, Chile’s starting to look a little at risk. Copper may test its lows for the year again and that’s not especially good for Chile, and there are more and more signs that China is slowing more than expected. If you’re looking for a bearish Chile position, long real, short peso could be better. You’re going to get the Brazilian central bank defending the real around 2.09, 2.10 and 2.11 per dollar while the Chileans would let the peso go to 520 per dollar.”

On Colombia’s Peso:

“The Colombian peso is a pretty strong story and it has performed very well in the last couple of months. So I can see the benefits of being long in Colombian pesos and funding it in euros. The problem is that as the Colombian peso approaches 1,750 per dollar you could expect the central bank to step up the rhetoric.”

On Euro as Funding Currency:

“There seems to be an increasing consensus around using the euro as a funding currency.”

On Mexico’s Peso:

“On the Mexican peso, we like the local story, which has been resilient and has fed off the U.S. data quite well. The election removes some of the uncertainty and is probably a positive as the PRI may have more success in coming up with a reform agenda.

‘‘The fly in the ointment is Mexico’s correlation with global risk parameters like the S&P, the Vix and the euro. The Mexican peso tends to get hit regardless of how well the domestic economy is doing.’’

To contact the reporter on this story: Sebastian Boyd in Santiago at sboyd9@bloomberg.net

To contact the editor responsible for this story: David Papadopoulos at papadopoulos@bloomberg.net


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