Brazilian stock market optimism has tempered as fears grow over October vote

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A man is seen in front of an electronic board showing the graph of recent stock index fluctuations on the floor of Brazil’s B3 stock exchange in Sao Paulo, Brazil October 19, 2021. REUTERS/Amanda Perobelli

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BUENOS AIRES/MEXICO CITY, May 25 (Reuters) – Brazilian stocks will rise less than expected this year as fears over the October presidential vote dim prospects for the second half and double-digit interest rates prompt to switch to deposit accounts, according to Reuters poll showed.

In recent weeks, Brazil’s benchmark Bovespa stock index (.BVSP) has pared most of its first-quarter gains, under pressure from heightened election rhetoric and the impact of the ultra surge. -hawkish central bank to fight inflation. It is now up 5.2% from end-2021 levels.

It is expected to rise another 6.0% to 117,000 points by the end of 2022, from 110,345 points on Monday, according to median forecasts from 15 strategists surveyed May 12-24. This estimate was lower than the end-2022 view of 125,000 points returned by the last survey in February.

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“We are going to face a brutal election, high interest rates are with us for the foreseeable future and we have persistent inflation around the world,” said Andre Leite, partner and principal portfolio manager at Kairos Capital.

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

A group of lawyers and legal experts said last week that Brazil’s democracy and the independence of its judicial system are under threat from the government of President Jair Bolsonaro, which says the electoral system is susceptible to fraud. Read more

His attacks on Brazil’s judiciary and e-voting system have raised fears he will not accept defeat in October in a race in which he trails left-wing rival, former President Luiz Inacio Lula da Silva.

Brazilian stocks outperformed US equities in the first quarter as commodity exports from Latin America’s largest economy were seen as indirect beneficiaries of the global trade disruption caused by Russia’s invasion of Ukraine.

But now more and more investors are pulling out of the volatile Bovespa stock index and putting their money in safer bank accounts to take advantage of Brazil’s high rates which, currently at 12.75%, are among the highest in the world.

In Mexico, the S&P/BMV CPI index (.MXX) is expected to gain 11.7% to 57,400 points by the end of the year, from 51,376 on Monday. The estimate was higher than the last survey’s call by 57,050 points at the end of 2022.

“We remain optimistic, local corporate earnings continue to recover from the impact of the coronavirus pandemic and the stability of the Mexican currency continues to favor foreign investors,” said Gerardo Copca, director of MetAnalisis.

Mexican equities are virtually flat so far in 2022.

(Other stories from the Reuters Global Stock Markets Poll Brief:)

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

Our standards: The Thomson Reuters Trust Principles.

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