Brazil stocks tumble as Lula wins election, cabinet in focus

Content of the article

SAO PAULO — Brazil’s real currency and international quotes for Brazilian stocks fell on Monday after leftist Luiz Inacio Lula da Silva won Sunday’s presidential election, as investors braced for a volatile week ahead.

The real opened some 2% lower, touching 5.4070 to the dollar, levels last seen in the wake of the first round of elections in early October.

Content of the article

U.S.-listed shares of Brazilian state-owned oil company Petrobras suffered some of the steepest declines, falling more than 10% in premarket trading, while lender Banco Bradesco SA saw its listing drop 5% – a decline matched by all iShares MSCI Brazil ETFs.

Advertisement 2

Content of the article

Bonds issued by Petrobras also suffered, with some dollar-denominated issues down more than two cents, according to data from MarketAxess.

Investors are watching closely for any indication of Lula’s future cabinet and signs that Lula’s defeated rival, incumbent President Jair Bolsonaro, will question the results, potentially fueling political tensions that could create unrest or derail the government. expansion of the largest economy in Latin America.

With economic growth of 2.7% expected for 2022, Brazil’s Bovespa stock market has risen 14.8% in US dollars this year, second best among global benchmarks, while its currency, the real, gained 5.2% against the greenback.

Bolsonaro has made baseless allegations of fraud in Brazil’s elections and discussed refusing to accept voting results last year. He and his campaign have remained silent since election officials declared Lula a victory, while a senior official said Bolsonaro would not make a speech until Monday.

Advertisement 3

Content of the article

“We expect some noise from Bolsonaro supporters, but it doesn’t seem to threaten institutions,” said Ricardo Lacerda, founder and chief executive of investment bank BR Partners.

In his victory speech on Sunday evening, Lula promised to unite a divided country. He called for international cooperation to preserve the Amazon rainforest and said he would seek fair global trade rather than trade agreements that “condemn our country to be an eternal exporter of raw materials”. He also said he feared Bolsonaro would allow an orderly transition.

JPMorgan analysts said “political tension could increase in the near term, and we will be watching this tail risk closely.”

Most analysts said they expected any effort by Bolsonaro to challenge the results would be short-lived.

Advertisement 4

Content of the article

“We believe a peaceful transfer of power will eventually take place,” Roberto Secemski told Barclays.

“Most political and economic players have not backed Bolsonaro’s claims, showing no institutional appetite to engage with him on a disruptive path.”

WAITING FOR VISIBILITY

However, it may take longer to get better visibility on the incoming government. Lula has been wary of potential cabinet choices during the election campaign, but several trusted allies of his Workers’ Party (PT) are expected to take key positions in the new government on January 1.

“The biggest focus for the market will be on Lula’s appointments as Minister of Finance and Budget Planning,” Citi analysts said. Their report says the most likely outcome is the appointment of a well-known PT politician such as Alexandre Padilha backed by a respected economic team that would be announced closer to Lula’s inauguration.

Advertisement 5

Content of the article

In stock markets, state-controlled companies are set to suffer as Lula’s victory dismisses Bolsonaro’s promise of privatizations.

Francisco Levy, chief strategist at Empiricus Investimentos, expects shares of Petrobras and state lender Banco do Brasil SA to be hit the hardest.

But Levy said Lula’s positive image abroad could lessen concerns about possible unorthodox economic policies.

“A favorable international reaction to Lula can help,” he said, adding that the key to long-term markets will be economic policies. Lula was quickly praised by the White House and European governments.

Goldman Sachs analysts predicted in a report on Sunday that financial markets could react positively to signs of social peace, political stability, and policies and reforms that leverage investment and growth. Over the past 11 years, there has been no growth in real gross domestic product per capita.

The premium demanded by investors to hold Brazilian hard-currency bonds over US Treasuries tightened to 266 basis points on Monday from 272 basis points on Friday, according to JPMorgan data. by Paula Laier, Jamie McGeever, Rodrigo Campos, Susan Mathew and Karin Strohecker; Editing by Christian Schmollinger and Muralikumar Anantharaman)

Advertising

comments

Postmedia is committed to maintaining a lively yet civil discussion forum and encourages all readers to share their views on our articles. Comments can take up to an hour to be moderated before appearing on the site. We ask that you keep your comments relevant and respectful. We have enabled email notifications. You will now receive an email if you receive a reply to your comment, if there is an update to a comment thread you follow, or if a user follows you comments. See our Community Guidelines for more information and details on how to adjust your email settings.

Comments are closed.