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Sunday, January 29, 2023

with caution, investors do not see a crisis but are watching what Lula will do

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But what reading have their foreign colleagues done? As collected citywire, For the veteran manager of the Swiss Vontobel, Thierry Larose, caution will prevail but he trusts in the strength of the institutions to weather the turmoil. Larose, who runs emerging-market local currency bond funds, said the timing of the Invasion of the “Capitol” of Brazil, which has echoes of what was seen in the US two years ago, would deepen political divisions within the country, but was unlikely to spur market chaos. For the veteran manager, these events are likely to induce a greater degree of political polarization that, in the worst case, can affect the country’s governability, should the social or economic climate deteriorate significantly. So this could end up translating into a structurally higher risk premium on Brazilian assets, he warned. However, he recalled that an additional risk premium from Brazil is already present and is quite high by emerging market standards, especially in local rates and stocks.

Unlike what happened in Washington years ago, the condemnation was unanimous across the political spectrum with no opposition political leader willing to defend the protesters. For this reason, the risks were also mitigated by the lack of political support for the protesters and the solidity of Brazilian institutions, he stressed. Therefore, Larose concludes that while caution is warranted over the next few hours and days, any extreme bouts of volatility should be viewed as an opportunity.as foreign investors are likely to be reassured by the strength of Brazilian democracy and the ability of its institutions to maintain an adequate level of law and order.

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In this line, Graham Stock, RBC BlueBay Asset Management emerging markets strategist, marked major differences with the occupation of the US Capitol as no one was killed, more than 300 of the protesters were arrested, the buildings in question were not in use at the time, Lula he already took office as president more than a week ago and a wide swath of the political spectrum rejected the actions of the protesters. Stock does not expect to see more market volatility in the short term but notes that for now, markets will be more attentive to signals about the likely path of economic policy and, specifically, to the credibility of the government’s plans to achieve sustainability. fiscal while also tipping spending to address societal challenges.

Other colleagues do not rule out that the facts may generate volatility in the values ​​most exposed to the country. For them, investors remain very attentive to the events that occurred in the largest economy in the region and watch with concern the future of a situation that brings to mind the assault on the Capitol with Trump. For now he has suffered more from the Brazilian currency than from stocks. In this regard, Ebury analysts warned that the parity of the real against the dollar and interest rates may suffer with the exit of positions in the national currency and the demand for a higher premium by investors to protect themselves from worsening perception for Brazil. Eduardo Moutinho, an analyst at Ebury, explained that the flow of capital from foreign buyers that entered the Brazilian market recently was likely to unravel, and investors should wait until the political and fiscal scenario aligns.

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Source: Ambito

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