Colombian assets hit by junk status

Colombia's peso and stocks tumbled on Thursday after the country lost one of its three investment-grade ratings, while most other Latin American currencies rose slightly in response to growing concerns over tighter US monetary policy.

The peso shed about 0.8%, touching a one-week low to the dollar after S&P Global Ratings lowered Colombia's rating to junk bond status.

Analysts said the downgrade had come earlier than anticipated, while Wall Street banks JPMorgan, Morgan Stanley and Goldman Sachs predicted that Fitch would follow suit with a rating downgrade this year.

The downgrade follows violent anti-government protests over a now-withdrawn tax reform, as well as growing concerns over strained fiscal spending and debt because of the COVID-19 pandemic.

"We do expect Fitch to follow S&P in the near future given our expectation that political restrictions will prevent the authorities from delivering a meaningful structural tax reform," Goldman Sachs analysts wrote in a note.

"Furthermore, rising social activism may have negative implications for medium-term investment/growth and the fiscal baseline, given intense demands for additional spending."

Colombian stocks tumbled more than 2%.

Other Latin American currencies rose slightly, recovering from losses on Wednesday, after minutes of the US Federal Reserve's latest meeting showed more talk of tapering the bank's bond purchase program than initially expected.

Brazil's real rose 0.4%, recovering from its worst day in more than a week. The prospect of tighter monetary policy in the country has benefited the real, as inflation heats up in the country.

Mexico's peso rose 0.2%, although further gains were hampered by a drop in oil prices. Still, the Mexican economy is expected to benefit from a post-COVID recovery in the United States.

Investors have also been watching for potential interest rate hikes by the Mexican central bank, given a recent spike in inflation.

Chile's peso rose 0.1%, while Chilean stocks outpaced their regional peers with a 1% bounce. The bourse was supported chiefly by gains in mining stocks, after SQM, the world's No. 2 producer of lithium, posted a near three-fold jump in its sales of the metal in the first quarter.

SQM's shares surged about 3.7%.

Broader Latam stocks edged lower, with the MSCI's index of regional stocks falling 0.3%.

Shares of Brazilian state power utility Eletrobras fell 2.2% from record highs, as the country's lower house approved a bill to privatize the firm.