Brazil: Markets have Gotten Overly Optimistic - BBH
Analysts from Brown Brother Harriman, warned again investor about being
overly bullish about the growing likelihood of a new government.
Key Quotes:
“Reports
suggest Rousseff is willing to exhaust all legal avenues against
impeachment, which would include appeals to the Supreme Court. She has
also portrayed the impeachment as a coup, which is a highly charged term
in Brazil. This will likely lead to further protests and heightened
social unrest as the impeachment process continues.
“What could
markets expect from a new government? With the odds now seeming to
favor Vice President Temer eventually taking power, press reports
suggest he has begun drawing up plans to form a transitional
government.”
“Yet we still think markets have gotten overly
optimistic on Brazil from the potential for political change. Whoever
the next president is, they will be saddled with a weak economy and
terrible fundamentals. Going forward, we posit that the days of massive
BRL (and Brazil) outperformance are likely over for now.”
“With
the central bank conducting reverse swaps and oil down 3% today, we may
not get a clean read on BRL until later this week. For spot USD/BRL,
recent lows near 3.46 are likely to provide a near-term floor.
Retracement objectives from the January-April drop come in near 3.7325,
3.8165, and 3.90.”
