Tags: Brazil | Investors | Election | Finance Chief

Brazil Investors Prepare for Rout With Finance Chief Seen as Key

Monday, 27 October 2014 08:29 AM

Dilma Rousseff was re-elected for a second term as Brazil’s president in a runoff vote Sunday. Here’s what analysts, investors and strategists are saying they’ll be focusing in coming days:

* Otavio Vieira, a partner at hedge fund Fides Asset Management: Brazilian markets will probably “collapse” after Rousseff’s win, he said by phone. Rousseff’s main challenge is taming inflation; Brazil’s economy “is just starting to get worse” and will only rebound if Rousseff makes significant policy changes, which is unlikely, he said.

* Joao Pedro Brugger, portfolio manager at Leme Investimentos: The Ibovespa could fall as much as 10% today, he said by phone. Petroleo Brasileiro SA and utilities will suffer the most, while the real could weaken below 2.6 per dollar. Rousseff’s choice to replace Guido Mantega as finance minister is “key” for her to regain investors’ trust, avoid a sovereign credit downgrade.

* Daniel Tenengauzer, head of emerging markets at RBC Capital Markets LLC: Real could fall to as low as 3 per dollar if policies are kept and allegations of Petrobras corruption escalate, he wrote in a message to clients. Sees 60% chance currency will appreciate back toward 2.35 in six months if Rousseff and her party adopt a more market-friendly stance as soon as possible and she nominates a pragmatic economic team. RBC maintains forecast for real at 2.55 per dollar for year-end. Investors “should not rule out a credit downgrade to sub- investment grade.”

* Benoit Anne, head of emerging markets strategy at Societe Generale: Assets denominated in Brazil’s currency will come under significant pressure in the first day of trading after Rousseff’s re-election, with real falling to as low as 2.6 per dollar, he wrote in a e-mailed message to clients.

* Carlos Gribel, the head of fixed income at Andbanc Brokerage: Biggest reaction will be in the currency, with real possibly weakening to as low as 2.7 per dollar this week, he said by phone. Slight decline expected for prices of Brazil sovereign bonds and quasi-sovereigns, such as Banco do Brasil SA and Caixa Economica Federal, while bonds from Banco Bradesco SA and Itau Unibanco Holding SA should perform better than state companies and quasi-sovereigns. Sale of dollar-denominated bonds from Brazilian issuers won’t pick up until Rousseff makes clear what her economic plan is for her second term and who she will nominate as the next finance minister.

* Bianca Taylor, a Boston-based senior sovereign analyst and strategist at Loomis Sayles & Co.: Real could weaken to as low as 2.6 per dollar this week, then rebound, she says by phone. “Her victory was not totally priced in yet. We should see a slump in Brazil assets as a whole in the next few days.” Investors will be watching closely for any sign Rousseff gives in her initial speeches for hints on what is to come. Investors are eager to see who Rousseff names as finance minister to replace Mantega and president should act quickly. Regaining credibility, improving fiscal condition and fighting inflation will be the top three challenges for second term.

* Siobhan Morden, the head of Latin America strategy at Jefferies Group LLC: Market reaction will be moderate this week, she said by phone. Rousseff will need to be sensitive and acknowledge the voters who didn’t choose her. Main focus for investors will be who she nominates for next finance minister and how quickly that takes place. If the real heads to 2.6 per dollar in following weeks, the central bank will be forced to intervene.

* Frederico Sampaio, chief investment officer of Franklin Templeton Investments Brazil: Market’s lack of confidence in Rousseff’s economic team will be the main issue to be addressed while trying to fight inflation, diminish spending and avoid a downgrade, he said by phone. Political environment for Rousseff is weaker in this turn since results were very close, country very divided.

* Tony Volpon, managing director at Nomura Securities: Rousseff needs to regain confidence of productive sector. Market to wait for new finance minister nomination. Selic to remain stable; foreign exchange swap program to be extended; real to weaken to 2.52 per dollar today.

* Jose Francisco de Lima Goncalves, chief economist at Banco Fator: Economic policy likely to remain the same. Selic likely to rise next year to 12%; real to weaken to 2.6 per dollar today.

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Dilma Rousseff was re-elected for a second term as Brazil's president in a runoff vote Sunday. Here's what analysts, investors and strategists are saying they'll be focusing in coming days:* Otavio Vieira, a partner at hedge fund Fides Asset Management: Brazilian markets...
Brazil, Investors, Election, Finance Chief
Monday, 27 October 2014 08:29 AM
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