HALISTER1: Brazil Reforms May Lead To Further Market Gains: Analysts

Brazil Reforms May Lead To Further Market Gains: Analysts

(Bloomberg) -- Brazil assets may extend YTD rally should a potential new government led by Vice-President Temer implement reforms; for BRL, BCB auctions are also key, analysts say.
  • “If the new government implements everything that it has pledged, the room for (markets) improving is big,” Rodrigo Borges, FI head at Franklin Templeton Invest Brasil says in a phone interview
    • New government “discourse is music for ears. It depends if the government will deliver”
    • Meirelles, would-be finance minister, may have the needed political skills to help government approve measures; reports suggesting Meirelles himself will suggest names for other economic team posts, including the BCB, also seen as positive for the mkt
    • “Having cohesion is a need, as the ship sails better when everyone paddles in the same direction”
  • While BRL gained as much as 113% from 2003 to 2010, when Meirelles headed the BCB, it is unlikely that that the currency will record those levels now, Matheus Gallina, FI trader at Quantitas Gestao de Recursos
    • External scenario not as positive as in 2003-2010, and BCB reverse swaps auctions may lead BRL gain to be limited between 3.00-3.50/USD, Gallina says
    • Potentially more orthodox new BCB team may postpone Selic rate cuts in one or two meetings to assure improvement in inflation expectations
  • Eventual further gains for BRL may be limited even if Brazil solves its political crisis and approves some reforms, Mauricio Oreng, senior strategist at Rabobank says
    • Oreng sees BRL rising temporarily to 3.30-3.40/USD; external scenarios likely to bring BRL back to 3.75/USD
  • NOTE: Since the Senate procedures continue with no delay, President Rousseff’s ouster may be voted on in the second half of next week
  • NOTE: Templeton’s Mobius adds cash to Brazil, saying Rousseff removal not priced in
Alert: HALISTER1
Source: BFW (Bloomberg First Word)

People
Rodrigo Borges (Franklin Resources Inc)
Henrique Meirelles (J&F Investimentos SA)
Mark Mobius (Franklin Resources Inc)
Matheus Gallina (Quantitas Gestao de Recursos SA)
Mauricio Oreng (Banco Rabobank International Brasil SA)

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