A stronger economy should help Brazilian stocks power through the rest of the year, but growing skepticism towards the October presidential elections is likely to curb gains, the latest Reuters poll of brokers, traders and market strategists showed.
The benchmark Bovespa stock index is likely to surge around 16 percent to 88,200 by year-end, according to the median of 10 forecasts compiled May 24-30, just short of an all-time record of 88,317 reached earlier this year. The poll highlights forecasters' bullishness over Brazilian stocks, even after a nationwide truckers' strike roiled Latin America's largest economy and with many households still struggling to recover from the deepest recession in decades.
Several analysts who normally participate in the quarterly Reuters survey declined to provide forecasts as they were still revising their numbers to account for the strikes, which have lasted over a week and stemmed flows to several key sectors. Yet that would still mark a more than 15 percent increase by the Bovespa index in 2018, capping a 102 percent rally since the end of 2015, easily making Brazil one of the world's best-performing stock markets.
"It's like a basketball: if you drop it on the floor, it will bounce back. I expect stocks to gain because the basketball is rebounding, not because there's someone pulling it up," Raphael Figueredo, a partner at Eleven Financial, said. The Brazilian economy expanded in the first three months of 2018 for a fifth straight quarter, and a poll last week showed it is likely to accelerate as the year advances. Still, this growth follows the worst recession in decades.
The recovery should underpin gains in cyclical sectors such as retail and consumer goods, while record-low interest rates reduce funding costs for companies across the board, poll respondents said. Most economists and analysts agree that maintaining a steady pace of growth going forward will hinge on policymakers' ability to curb a growing budget deficit and bring back Brazil's investment grade status.
Several polls showing the field split all over the political spectrum months before the presidential elections suggest this is far from a done deal. This goes against an oft-repeated mantra, showcased in several Reuters surveys late in 2017 and earlier this year, that the next president would likely commit to an agenda of deficit cutting, privatization and deregulation, considered necessary to plug the growth of debt. Accordingly, the median forecast in this week's survey came in lower than the 91,250 estimate in the previous poll, taken in February.
Though not a large revision overall, expectations for Mexico's benchmark S&P/BVM IPC index remained nearly flat at 53,500, from 54,150 previously, suggesting any downward pressure on Brazilian stocks is likely to stem from local factors. Investors in Mexican stocks worry that Andras Manuel Lopez Obrador, who is leading presidential polls, could turn his back on fiscal responsibility or pursue nationalist policies that would curb market gains. But even a victory by Obrador would not likely prevent further stock market gains, poll respondents said, as he would struggle to pass radical measures through Congress.
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