Markets Suffer From ‘Tequila Effect’

Like a New Year’s hangover that won’t go away, Mexico’s economic crisis has hit Latin American financial markets and battered investors throughout the hemisphere.

Exchanges from Peru to Brazil and Argentina to Chile began bouncing back late last week, but restoring the confidence of foreign investors could take months or longer.

Growing numbers of American investors had rushed into markets south of the border. Many are now smarting over $10 billion in Mexican stock losses after the peso’s abrupt slide and are more wary of developing countries.

The widely touted “Mexican Miracle” has given way to migraines throughout Latin America, where markets plunged last week. Currencies dipped as far away as Thailand.

“We are calling it the Tequila Effect after Mexico’s national drink,” said analyst Patricia Tyler at the New York offices of S.G. Warburg & Co., an international investment banking company. “The crisis has spilled over and the other countries are definitely feeling the effects.”

The devaluation that began Dec. 20, lopping about a third off the peso’s value, followed the sort of year Latin America had been trying to leave behind: a guerrilla revolt, assassinations and spectacular kidnappings in Mexico.

That made some investors wary as rising international interest rates and booming growth elsewhere increased competition for the investment money Mexico had counted on to balance its accounts.

Investor disenchantment hit markets throughout the region.

“Mexico is New York’s window on Latin America. Therefore, less investment in Mexico means less investment on stock exchanges in the region,” said Carlos Huaman Tomecich, a prominent stockbroker in Lima, Peru.