Itaú BBA - Feedback from Asia trip on Brazil – Fixed Income Strategy

Latam FI Strategy Monthly

< Back

Feedback from Asia trip on Brazil – Fixed Income Strategy

November 19, 2018

The post-election scenario is generally seen as positive.

 


I am just back in São Paulo after a trip in Asia last week. We had 5 days of meetings focused on the post-election scenario in Brazil with fixed-income institutional and retail investors in Tokyo (1 day), Seoul (3 days) and Singapore (1 day).
 

  • The post-election scenario is generally seen as a positive one within the emerging markets space, although there are (naturally) doubts about politics and timing for approval of the reforms. The most frequent question was about the timing for social security reform, specifically on which is the likely month of next year that we may see the reform voted in the Lower House. But the expectations are high with the new government’s reform proposals.
  • Investors are still very much concerned about the global scenario, specifically on rising interest rates in developed economies and the trade war between U.S. and China. The BRL depreciation accumulated before the recent rally generated losses to investors, despite the high carry of local bonds. Not a few times we heard about investors stepping out of Brazil right after the recent BRL rally, just as it was sufficient to eliminate the losses. The majority seemed skeptical on any meaningful improvement in the global scenario for EMs. Most believe the tension between U.S. and China will continue, even after the G20 meetings, and the global scenario as a whole favors continued USD strength against EM currencies.
  • Bottom line: An improvement in the global scenario could be a small trigger for Asian investors to buy Brazil. Given that most like the story within the EM space, Brazilian markets could continue to outperform. But the real game-changer for stronger investment in Brazil from Asia (probably other countries as well) is the approval of the social security reform.


 


MACRO TEAM:

Mario Mesquita - Chief  Economist
Fernando M Gonçalves, fernando.goncalves@itaubba.com
Luka Barbosa, lbarbosa@itaubba.com
João Pedro Resende, joao.resende@itaubba.com
Juan Carlos Barboza, Juan.Barboza@itaubba.com
Miguel Ricaurte, miguel.ricaurte@itau.cl
Julio Ruiz, julio.ruiz@itaubba.com



< Back