January 27, 2023

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Brazilian stocks up 13% by the end of 2023 despite political uncertainty: Reuters poll By Reuters

©Reuters. FILE PHOTO: A man points to an electronic board showing fluctuations in market indexes on the floor of Brazil’s BM&F Bovespa Stock Exchange in downtown Sao Paulo, Brazil January 7, 2016. REUTERS/Paulo Whitaker/File Photo

By Gabriel Burin and Noe Torres

BUENOS AIRES/MEXICO CITY (Reuters) – Brazilian stocks will rise by double digits through the end of 2023 despite uncertainty over new government policies as President-elect Luiz Inacio Lula da Silva tries to balance social priorities and budget constraints, one predicted Reuters poll.

While financial models for Brazilian stocks continue to show potential upside over the next year, market experts were bearish in their qualitative survey responses, pointing to doubts about Lula’s team and budgetary worries.

The benchmark stock index Bovespa is expected to rise 13% to 123,250 points by the end of 2023, from 108,976 points on Friday, according to the median estimate of 11 strategists polled Nov. 14-23. Year to date, the index is up just 4%.

“The scenario depends on who the ministers of the new government will be and what plans are announced… The (index) is still on the discount awaiting government news,” said Fernando Bresciani, research analyst at Andbank.

After receiving a warm welcome during an international tour, Lula last week faced the difficult task of defining his government amid financial fears and divisions in his coalition.

Members of his transition group have expressed conflicting opinions on the 2023 budget talks and the Inter-American Development Bank (IDB) leadership race. Even some of Lula’s allies resent the slow pace of decisions.

Meanwhile, progress in congressional talks on a measure he backed to exempt at least 100 billion reais ($19 billion) from Brazil’s spending cap next year has raised alarms at the central bank and potentially delayed any future monetary easing.

“High interest rates and lower commodity prices weighed on corporate results…the new government will not manage taxes well and interest rates will therefore remain high for longer,” said Filipe Villegas, analyst at Genial Investimentos.

In addition to the skeptical tone, all 7 respondents who answered a separate question on the outlook for corporate earnings in Brazil over the next six months said they expected earnings to deteriorate.

Brazil’s economy ministry last week cut its GDP growth forecast for 2023 to 2.1%, from 2.5% expected in September, on a worsening global outlook. Private economists forecast an expansion rate of just 0.7% in a weekly central bank survey.

The Bovespa’s 4% gain this year has outperformed Mexico’s S&P/BMV, which is down 3% so far in 2022 but is expected to rise nearly 7% from last week’s readings to 55,250 points by the end of next year .

“After some adjustment in February or March due to slower economic growth in the first quarter of 2023, Mexican stocks should rebound if corporate results improve again,” said Gerardo Copca, analyst at MetAnalisis.

(More stories from the Reuters Q4 global stock market survey package 🙂

(Additional polls and reports by Noe Torres in Mexico City; Additional polls by Mumal Rathore, Susobhan Sarkar and Sarupya Ganguly in Bengaluru; Editing by Ross Finley and Bernadette Baum)