Uncertainty about Brazil's presidential elections is likely to curb stock gains this year, a Reuters poll showed, while making strategists and analysts more wary of issuing precise forecasts. Brazil's benchmark Bovespa stock index is likely to rise 5.2 percent to 82,500, according to the median of 13 estimates. That estimate is down from 88,200 in the May 2018 poll.
Analysts polled about Mexico's stock market kept their forecast fairly steady from the previous quarter, expecting the benchmark index to rise about 5 percent by year end. All forecasters who responded to the Brazil monthly surveys either kept or cut their year-end target even as the index held nearly flat, driving the third straight decline in the median estimates in Reuters' quarterly polls.
Still, the figures do not fully capture the mounting uncertainty about Latin America's biggest stock market as voter intention polls paint a blurry picture less than two months before the vote. "There's no visibility at all. There's so much mist we're forced to drive at 10 miles an hour, but we should in fact be parking the car and waiting for the storm to clear," Mirae Asset head of trading Pablo Spyer said. "Nobody has any clue who the president will be, nor how quickly he will manage to implement reforms, which is the main variable you have to deal with when making forecasts for Brazil."
Equity strategists more comfortable basing predictions on traditional variables such as corporate earnings expectations and funding costs, must now guess election outcomes and future policymaking. Deutsche Bank, for instance, issued three different forecasts for the benchmark index and attributed different likelihoods for each.
The bank sees a 30 percent probability that President Michel Temer's successor will quickly and profoundly rebalance fiscal accounts, which would lift the index to 120,000. The most likely scenario, with a 40 percent chance, would see the index rise to 85,000 under a limited fiscal reform plan.
A president who is unwilling or unable to cut spending and curtail growth of public debt would trigger a selloff to 50,000, with a likelihood of 30 percent, the bank said. Though Deutsche Bank declined to name which candidates would fall under each of its scenarios, the market reaction to recent polls would suggest investors have their minds made up. Analysts and investors widely believe an agenda of spending cuts and deregulation is key to bringing back Brazil's investment grade sovereign rating, reducing capital costs for listed companies.