Fiscal and political uncertainties cost the Brazilian stock market its role as favorite; it becomes the red lantern

Ibovespa, the B3 index of the São Paulo Stock Exchange, has not kept pace with international stock markets since the 2022 elections.

From Oct. 28, the last trading day before the election, to Monday (Nov. 21), it fell 4.2%. Major developed and emerging market indices rose during the period.

In the first week after the elections, the index was up 3.2%, but the market’s honeymoon with the government of Luiz Inácio Lula da Silva (PT, left) did not last long.

While the Ibovespa fell 4.2% since the elections, the Dow Jones in the United States rose 2.6% over the same period.

The eurozone’s Euro Stoxx 50 rose 8.2%. Germany’s DAX rose 8.6%. And the FTSE 100 in the United Kingdom was up 4.7%.

Major emerging equity markets also rose since Oct. 28: Shanghai (China): +5.8%; Kospi (South Korea): +6.7%; S&P BMV (Mexico): +18.8%; Nifty (India): +2.1%.

The Russian Moex index was the only one of the selected indices that fell during the reporting period: -0.1%.

One of the reasons is the initiative to increase public spending with the PEC (proposal to amend the Constitution) to finance electoral promises, such as the permanent increase of the Bolsa Família to R$600.

The text, which has not yet been presented, may exceed the R$198 billion spending limit.

Market participants have criticized the government’s intention.

Investors are concerned about the long-term sustainability of public finances, which also affects the evolution of public debt, inflation, and the key interest rate Selic.

The popular uprising, dubbed ‘Brazilian Spring’, questioning election results based on private polling analysis is also weighing on investors’ spirits.

Read more below about Brazilian Spring and its background.

The financial market has raised forecasts for the IPCA (National Wide Consumer Price Index), interest rates, and the trade dollar in 2023.

According to the central bank’s Focus Bulletin, analysts have raised their estimates from 4.94% to 5.01%.

REAL GAINS 0.4%

The Brazilian currency has gained 0.4% against the dollar since Oct. 28. Other emerging currencies such as Mexico (+1.8%), Peru (+3.7%), South Korea (+4.8%), and South Africa (+5%) strongly outperformed.

The survey was conducted by Austin Rating’s chief economist, Alex Agostini, on behalf of Power360. Click here for the full survey.

Yesterday Monday (Nov. 21), the US currency fell by 1.2 to R$5.31.

BRAZILIAN SPRING QUO VADIS?

You can read in mainstream newspapers everywhere that the military in Brazil found no signs of electoral fraud in the presidential election and that the election, in which leftist Lula da Silva won by a razor-thin margin, was legitimate.

But people do not agree.

What Brazil is experiencing right now is the biggest popular uprising ever seen in our lifetime, and they call it the ‘The Brazilian Spring’.

There have never been street protests on this scale anywhere in the world. We’re not just talking millions; we’re talking 8 figures, tens of millions.