Market prices carry informational value. This is not always true, especially at erratic moments, but it is largely applicable. Currently, here in Brazil, we have some conclusions to remove from the numbers that flash on our screens.
The scholarship today “precipitates” something like 85% chance of a reelection of President Lula, is also true when we analyze the situation of government bonds. I think this highlights the rare environment we live in.
I explain …
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If we have a “Lula 4”, we can think that we will be 6 years old (half of this term in this account) of this management – with few signs of focus on the tax agenda and some lack of credibility.
We must follow in a deterioration agenda, as indicated by all managers who recently gave interviews. It would be the possible low “of Brazil – in good Portuguese (not in the crude jargon of the market), the point where local actives reach their deeper level of depreciation.
It would be a difficult time for the market. With even higher interest rates, with the resource management industry decreasing further, we would have more consolidation and many managers would close their doors. The number of judicial recoveries would be even higher, managers who probably survive would internationalize their resources.
The other side of the coin: Suppose we have a change of political cycle. With this, we would have a relevant risk prize decompression. There is reasonable space for appreciation of the scholarship, and even of the National Treasury roles – a true Bull Market. Or, as I like to say, “crazy beating”.
Both scenarios are not obvious now. Perhaps what we can be more clear is that, for sure, the chance of reelection is not close to 80%. It should be something like 50%in large numbers. That is, only with this adjustment, should we already watch a repracification of local assets.
Meanwhile, warm information comes from the institutional tables to say that action managers have begun marginally to rotate their wallets, exchange part of the most defensive positions for some more “wide” theses in the bag. This is a good synthesis of what is going on in my mind. Let’s see what else, Mr. Mercado, I will say for prices from now on.
