Friday 30 November 2018

Brazil post-Bolsonaro election? Macri redux?

Whats the risk that Bolsonaro triggers a credit contraction/ FX tail spin ala Macri in say H2-19? M3 is circa 320% & rising

Im guessing a bit more yield compression first though so curve flattens first and equities rally on hope

With investor flows into EM expected in H119 there is scope for the curve to bull flatten into early next year

But this will make the yield pick up over USTs even more minimal by H219

Some macro numbers had been weakening this year, but a good dose of hopium recently and we could see a bounce into H1-19 the could aling with investor flows into EM

The BOVESPA on a mid-teen P/E is breaking out by the looks of it

But H2 is where the question marks would start to arise

But with final demand dependent on the private sector picking up or the government maintaining its deficit, there is the risk of recession if govt cuts back, if iron ore/ oil prices drop or if confidence falls

With high M3/GDP there is the risk of an Argentina style FX tail spin

Despite USDBRL having devalued, it doesnt look particularly cheap on a REER basis

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