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Brazil stock market optimism tempered as fears grow over October vote

Published 05/25/2022, 12:18 AM
Updated 05/25/2022, 12:20 AM
© Reuters. A man is seen in front of an electronic board showing the graph of the recent fluctuations of market indices on the floor of Brazil's B3 Stock Exchange in Sao Paulo, Brazil October 19, 2021. REUTERS/Amanda Perobelli

By Gabriel Burin and Noe Torres

BUENOS AIRES/MEXICO CITY (Reuters) - Brazilian stocks will rise less than previously expected this year as fears over October's presidential vote tarnish the outlook for the second half and double-digit interest rates prompt a switch to deposit accounts, a Reuters poll showed.

In recent weeks, Brazil's benchmark Bovespa stock index has pared the bulk of its first-quarter gains, pressured by intensifying election rhetoric and the impact of the central bank's ultra-hawkish push to fight inflation. It is now up 5.2% from end 2021 levels.

It is expected to rise a further 6.0% to 117,000 points by the close of 2022 from 110,345 points on Monday, according to the median forecast of 15 strategists polled May 12-24. That estimate was below the end-2022 view of 125,000 points returned by the last survey in February.

"We will face brutal election times, high interest rates are with us for the foreseeable future, and we have sticky inflation around the globe," said Andre Leite, partner and senior portfolio manager at Kairos Capital.

Warnings that Brazil could face similar unrest to the 2021 U.S. Capitol riot and political instability driven by concerns over the election's transparency have soured the atmosphere five months before the presidential vote.

A group of lawyers and legal experts said last week that Brazil's democracy and the independence of its judiciary are under threat from the government of president Jair Bolsonaro, who claims the voting system is liable to fraud.

His attacks on the judiciary and Brazil's electronic voting system have raised concerns he may not accept defeat in October in a race in which he is trailing his leftist rival, former President Luiz Inacio Lula da Silva.

Brazilian stocks outperformed U.S. equities in the first quarter as commodity exports from Latin America's biggest economy were considered indirect beneficiaries of disruptions to global trade caused by Russia's invasion of Ukraine.

But now more investors are pulling out of the volatile Bovespa stock index and parking their money in safer bank accounts to profit from Brazil's lofty rates which, currently at 12.75%, are among the highest in the world.

In Mexico, the S&P/BMV IPC index is forecast to gain 11.7% to 57,400 points by year-end, from 51,376 on Monday. The estimate was above the last survey's call of 57,050 points at the close of 2022.

"We stay optimistic, local company earnings continue to recover from the impact of the coronavirus pandemic and Mexico's currency stability continues to favor foreign investors," Gerardo Copca, director at MetAnalisis, said.

© Reuters. A man is seen in front of an electronic board showing the graph of the recent fluctuations of market indices on the floor of Brazil's B3 Stock Exchange in Sao Paulo, Brazil October 19, 2021. REUTERS/Amanda Perobelli

Mexican stocks are virtually flat so far in 2022.

(Other stories from the Reuters global stock markets poll package:)

(Additional polling and reporting by Noe Torres in Mexico City; Editing by Jan Harvey)

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