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Southern Cone bank index continues rut in Q4'19 as Brazil, Mexico thrive

Continued uncertainty in Argentina had propelled the SNL Southern Cone Bank index further toward negative terrain in the last quarter of 2019, while other Latin American bank indexes recovered during the period.

The SNL Southern Cone Bank index ended the fourth quarter with a total return of -20.4%. The index had already been taking a pounding in mid-October amid crippling inflation and dampened growth, but it had regressed further in November following the victory of Peronist candidate Alberto Fernández over the business-friendly Mauricio Macri in the presidential elections.

The index saw its worst performance for the quarter on Nov. 28 with a total return of -26.6%, despite Fernández's statement that he would not initiate "haircuts" on Argentina's debt obligations, including those with the International Monetary Fund. Instead, a lack of concrete economic and spending plans from Argentina's new leader has been keeping investors on their toes.

On the same day, the country's capital markets had been rattled by the removal of several peso-denominated bonds from the key JPMorgan's GBI-EM Global Index, spurred by capital controls imposed by Macri's administration in September.

Adding to the woes in the south were the drawn-out protests in Chile, which prompted the government to reduce the growth forecast for 2019 and the central bank to implement controls to contain market volatility.

However, concerns around the Southern Cone countries have not spread to the rest of the region as the remaining bank indexes thrived during the quarter.

Leading the group was the SNL Brazil Bank index, which posted a total return of 19.0% at the end of the period.

Beginning the quarter mostly in the negative domain, the Brazilian index rallied on Oct. 22 following the Senate's approval of the pension reform bill. The pension overhaul was one of President Jair Bolsonaro's key campaign promises focusing on market-friendly policies.

The index was able to sustain its gains for the rest of the quarter as investors go bullish on the country amid a positive economic outlook and low interest rate prospects for 2020.

The SNL Mexico Bank index also ended the quarter in positive territory, with a total return of 2.9%. The index plunged to the negative zone at the latter half of November as economic data showed Mexico falling to a mild recession in the first half of 2019. The country's disappointing growth performance had added to investors' headaches, which were also sparked by President Andrés Manuel López Obrador's unpredictable policymaking.

However, the index recouped in December, even reaching a peak of 8.4%, amid renewed hopes around the approval of a trade agreement between the U.S., Mexico and Canada.

Meanwhile, the SNL Caribbean Bank index remained stable, lingering close to 0% throughout much of the quarter to end positively at 0.8%.

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