Brazil: Uncertainties about the economy gain strength after Sunday demonstrations
The existing uncertainties about the Brazilian economy gained strength after the demonstrations this Sunday in Brasília, which resulted in the invasion of Congress, the Planalto Palace and the Federal Supreme Court (STF).
The assessment is that the timing for changes in the fiscal area is getting tighter, which may add more pessimism in relation to Brazilian assets.
“We look forward to more signs that the government will be able to allay the market’s fiscal concerns, which could see Brazilian equities gain positive momentum thanks to attractive valuations and dividends, an improved earnings outlook supported by China’s openness and a strengthening of the US dollar”, says Nenad Dinic, strategist at Swiss bank Julius Baer.
The expectation is for investors to be more apprehensive about Brazil, especially if the acts do not cease. “Investors will be attentive to the consequences of these manifestations and to the new actions to be taken by the current government”, he points out.
Guide Investimentos points out that, even in the face of uncertainties surrounding economic policy, the proper functioning of the market first requires a stable institutional environment. “Apparently, the demonstrations have already been contained for the most part”, points out a report released this Monday morning (9).
BTG Pactual points out, in its morning podcast, that this Sunday’s events add more institutional volatility and noise, impacting discussions in the economic sphere, particularly in relation to the fiscal issue.
The assessment is that this scenario does not make life easier for foreign investors, precisely at a time when China is promoting an opening of its economy, after a strict policy to combat the Covid-19 pandemic.
According to analysts at the bank, Brazil had everything to be in the spotlight of the market. Last year, R$119.8 billion (US$22.62 billion) in foreign capital entered the stock exchange, the highest volume since the beginning of the historical series, in 2006.
“Given the great international repercussion of the events, it will be important to monitor the flow of foreign investment in Brazil”, says Fernando Ferreira, chief strategist at XP Investimentos.
At least two factors have been giving Brazil more visibility in recent weeks: the end of strict restrictions on the Chinese economy, the second largest in the world, which favors demand for commodities and the more delicate situation of other destinations for investors in emerging economies such as South Africa, Chile and Turkey.
The expectation is for a more tense day in the markets. “The increase in local political uncertainty should lead investors to demand higher risk premiums on domestic assets”, says the chief economist at Nova Futura Investimentos, Nicolas Borsoi.
With information from Gazeta do Povo
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