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What to expect from Ibovespa after the first round of elections? See possible scenarios

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The next Ibovespa trading session will be after the first round elections; Here’s what can happen (Image: Money Times/Diana Cheng)

O Ibovespa (IBOV) picked up steam this Friday (30) and closed with a strong rise of more than 2%, back to 110,000 points.

The good performance of the trading session alleviates the weight of the last sessions, which took the Ibovespa to 107 thousand points.

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Despite the strong appreciation this Friday, the index ends the week with an accumulated drop of 1.5%, pressured by a troubled external scenario and the proximity of the first round of the elections Brazilians.

Brazil goes to the polls on Sunday (2) to elect the next president of the Republic. Polls of voting intentions from several institutions place the former president Luiz Inácio Lula da Silva (PT) in the lead, followed by rival Jair Bolsonaro (PL)who seeks re-election.

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The latest surveys pointed to the chances of Lula ending the electoral contest for the presidency in the first round, although market agents consider this possibility to be remote, predicting a fierce dispute in the second round.

Possible scenarios for the Ibovespa

Anyway, the next Ibovespa trading session will be after the first round elections.

Market analysts outlined possible scenarios for the Brazilian stock exchange benchmark. In the first scenario outlined, in which Lula is elected in the first round, Leonardo Santana, an analyst at Top Gain, sees a “good gap low” – according to him, not because of the candidate, but because of the uncertainties.

“The biggest uncertainty of all is fiscal risk. Lula said that, under her government, there will be no spending cap,” she recalls.

Santana also points out that PT signaled his intention to change the company’s pricing policy. Petrobras (PETR3;PETR4), which should directly affect the Ibovespa, given the relevant weight that the state-owned company has in the index.

“Due to the uncertainties, with Lula winning in the first round, [o mercado] would see a fall in the stock market”, reinforces the analyst.

André Meirelles, allocation and distribution director at InvestSmart XP, recalls that, among the assets that make up the Ibovespa, there is considerable weight in state-owned shares (banks and commodities).

“An eventual victory for Lula may bring greater unpredictability to these companies, which may reflect negatively on their share price”, he comments.

Meirelles says, however, that some sectors may benefit if the former president wins – education and constructionfor example.

Bruno Komura, an analyst at Ouro Preto Investimentos, goes against Top Gain and believes that a definition of the elections in the first round will help reduce uncertainties.

“The market works with the idea that Lula is going to be pragmatic. It probably won’t go against the market in the first year, given our fiscal situation”, explains the expert.

Along the same lines as Santana and Meirelles, Komura believes that the retailpopular housing and education would gain, while state-owned companies would not.

Second round: good or bad for the Ibovespa?

Campaign materials with photos of President Jair Bolsonaro and former President Luiz Inácio Lula da Silva in Brasília
Would the second round affect the Ibovespa? There are differences of opinion in the market (Image: REUTERS/Ueslei Marcelino)

In the second scenario, in which the next president of the Republic is not elected in the first round, Santana and Komura show different opinions on the performance of the Ibovespa.

For Santana, holding a second round would not affect the index much, since a good part of the market does not work with the possibility of Lula being elected this Sunday.

“It wouldn’t affect that much, unless it was a significant difference”, assesses the analyst.

Within this scenario, Santana believes that the global macro scenario will prevail, with impacts greater than the Ibovespa elections.

The specialist at Ouro Preto Investimentos believes that the Ibovespa is more likely to rise if the elections are defined, but he does not work with Lula’s reelection in the first round.

In Komura’s assessment, Bolsonaro should close the gap in October, with a trend towards moderation in speeches, leading to a fiercer dispute in the second round.

“We live in the foreign market”

Regardless of the election results, the external macro scenario should weigh for the Ibovespa.

Rodrigo Cohen, analyst and co-founder of Escola de Investimentos, says that the market is much more concerned with the foreign market than the domestic scenario.

“There is no greater impact than the exterior. We live abroad,” she says.

For Cohen, the big question of the moment is: considering the macro panorama, will the Brazilian stock market fall?

The analyst explains that there is a systemic risk, which is the risk of the foreign market falling and Brazil falling with it. However, there is also the non-systemic risk, which would be a scenario in which other countries fall and Brazil manages to hold on.

“We have managed to have a greater advantage. When the world starts to rise due to any positive signs, in sequence, I strongly believe that we can anticipate and move up faster, ahead”, defends Cohen.

Komura, from Ouro Preto, believes that the impact of the deterioration of the perspectives for the main economies of the world could take the Ibovespa below the 100 thousand points.

Based on the latest economic data released by the United States, the analyst highlights that the Federal Reserve (Fed) it needs to “tighten up” conditions and be tougher on monetary policy, keeping interest rates at restrictive levels for a while.

According to Meirelles, from InvestSmart XP, for the Ibovespa to fall below 100,000 points, the market would need to see more negative surprises, since much of the pessimism is priced in assets.

“In the international scenario, investors should remain attentive to inflation and activity data from the United States, in the activity data of the China and in the unfolding of geopolitical conflicts. Here in Brazil, measures for the fiscal should weigh in the pricing of Ibovespa assets”, evaluates the director.


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Source: Moneytimes

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