Brazil vote pushes investors to safety

Washington, Sep 28 (SocialNews.XYZ) Brazil’s tightening presidential contest between Luiz Inácio Lula da Silva and Flávio Bolsonaro is pushing investors towards defensive assets and diversified portfolios as markets prepare for possible policy shifts after the election.

Opinion polls now indicate a more competitive race, increasing attention to public debt, government spending, interest rates and the economic teams the candidates would appoint.

Analysts are recommending government bonds and bank certificates of deposit for cautious investors, according to a report published on Sunday by Folha de S.Paulo.

In equities, utilities, commodity producers and companies with predictable cash flows are among the favoured sectors.

The recommendations reflect an effort to reduce exposure to price swings caused by uncertainty over the result and the economic direction of the next government.

Fixed-income investors are showing a preference for assets linked to Brazil’s Selic benchmark interest rate or the CDI rate used for transactions between banks.

These instruments generally experience fewer price fluctuations because their returns follow reference rates more closely than longer-term securities affected by expectations about future interest rates.

In the equity market, analysts identified electricity, sanitation and other utility companies as relatively defensive holdings. Many have revenues linked to inflation, providing greater predictability.

Low-income housing companies associated with the Minha Casa, Minha Vida programme are also seen as less exposed to a change of government because the housing initiative has become an established state policy.

BTG Pactual said discussions with fund managers indicated that investors were preparing for a competitive election while keeping portfolio risks under control.

Shares of state-controlled oil producer Petrobras were viewed as a broadly accepted holding under either election outcome. The stock has gained this year as international oil prices increased.

Citibank prepared separate model portfolios for possible victories by Lula and Bolsonaro.

Its assessment found that both candidates would face the same central challenge: restoring confidence in Brazil’s fiscal path at a time of elevated government debt.

The bank said the difference would be in how each administration pursued fiscal adjustment.

Brazil’s benchmark Ibovespa stock index has risen 6.4 per cent in September, while the US dollar has fallen 0.25 per cent against the Brazilian currency.

The direction was reversed in August, when the stock market declined 0.32 per cent and the dollar gained 2.21 per cent.

Foreign investment flows have also changed sharply. B3 data showed net foreign purchases of Brazilian shares reached 9.6 billion reais in September through September 22.

That followed net withdrawals of 18.1 billion reais in August. Foreign investment in equities remained positive by 32.6 billion reais for the year.

The latest Datafolha survey placed Lula at 40 per cent in first-round voting intentions and Bolsonaro at 36 per cent. The difference was within the poll’s two-percentage-point margin of error.

Brazil is Latin America’s largest economy and an important exporter of oil, iron ore, agricultural commodities and manufactured products. Its fiscal and monetary policies are closely watched by investors across emerging markets.

For India, the election carries both economic and diplomatic significance. India and Brazil cooperate through BRICS, the G20, IBSA and other forums, while bilateral commerce includes energy, agriculture, pharmaceuticals, automobiles and industrial products.

Source: IANS