Across-the-board recovery in June, partially on dollar weakness

　　Latam consumer stocks rose at mid-to-high-single-digit rates in June, partiallyon the back of dollar weakness (after a strong May). Over 70% of our coveredstocks showed positive returns in USD (vs. 10% the prior month), while 48%outperformed their respective indices (vs. 68%). Notable outperformers wereall Brazilian retailers (PCAR4, LREN3, MGLU3, ARZZ3, HGTX3); while notableunderperformers included HYPE3, BTOW3 (on proposed capital increase), all ofthe protein producers (led by MRFG3) and ABEV. YTD, only 42% of our coveredstocks have outperformed, and the sector overall has underperformed.。

　　Walmex Mexico comp sales fell short of expectations in June, for a change

　　Walmex reported June SSS growth of 6.8% in Mexico; falling slightly short ofDB and market expectations (we expected 7.5% and consensus was 7.9%).The calendar was neutral (the 5-week comparable growth rate was equal tothe calendar month’s), and June marked the first traffic decline in 10 months.Thus the underlying growth rate seems to be slowing down from that of recentmonths (potentially as a result of slowing growth in June remittances, whichwill only be released in early August). Central America, on the other hand,delivered 4.3% SSS growth (currency-neutral), significantly above the 1.3%reported in May and nearly in line with the year-to-date average.

　　SICOBE: Brazil beverage production continues to point to a tough economy

　　According to SICOBE, June beer production fell 1.0% on easier comps (7.0%drop in June 2015) and soft drinks fell 8.0% after rising only once in the past17 months. For beer, comparisons are set to get gradually more difficult in thenext three months; while for soft drinks they should remain easy (i.e., lappingyear-on-year declines) for the next nine months. Given the expectation of a 4%Private Consumption decline in 2016 (and only a slight recovery in 2017), wedo not expect a significant improvement in beverage trends any time soon(although stabilization, as a necessary first step, would be welcome) .

　　Beverage volumes were even worse in Southern Cone

　　CCU’s release of 2Q16 volumes also points to volume weakness for SouthernCone beverage businesses. The company reported Chile volumes (combinedbeer and soft drinks) were down 5.2% during the quarter, due in part to toughcomparisons (Copa America held in Santiago last year) and wet weather butalso to competitive pressures (from Ambev on the beer side and Coca-Cola onthe soft drink side). Similarly, international volumes (mostly Argentina but alsoincluding Paraguay, Uruguay, Bolivia) fell 9.6% in 2Q16. The sharp increase inutility rates in Argentina (in April) had an adverse effect on the consumer, butthis impact should be partially mitigated by important salary increases in June(and as a result, we would not expect volumes to suffer to the same extent inthe second half of the year).