BofA survey shows Brazil’s 2022 elections among main risks monitored by Latin American managers

RIO DE JANEIRO, BRAZIL – With investors closely monitoring the Brazilian political scenario, the 2022 presidential elections are starting to enter the radar of investment fund managers in Latin America and may dominate discussions in the coming months.

According to the “Latam Fund Manager Survey”, released on Tuesday, July 13, by Bank of America (BofA), about 30% of managers are considering the Brazilian electoral scenario as one of the main risks to be monitored in the region.

Also in Latin America, 40% of investors consulted listed a potential monetary policy blunder by the Federal Reserve as one of the risks to be monitored.

When placing only Brazil in the spotlight, almost 60% of respondents listed political unrest as the main risk for investments in Brazil – a percentage that doubled compared to the June survey.

Next comes a scenario of uncontrolled fiscal deterioration, pointed out by approximately 30% of managers consulted, according to BofA.

Stocks are preferred, but upside is low

For 69% of respondents, stocks are the assets expected to perform best in Brazil over the next 6 months, in line with the historical average of the American bank’s survey.

Nevertheless, managers see the Brazilian Stock Exchange moving sideways until the end of the year, with 78% estimating that the Ibovespa will close 2021 trading above 130,000 points – a level suggesting a potential rise of 1.9% over the closing of the last trading session, July 12.

Among the main drivers for the Brazilian stock market, about 32% voted for a progress in vaccination and economic reopening.

With respect to Brazilian economic growth, most respondents expect an increase above 4% in Gross Domestic Product (GDP) in 2021, according to BofA. As for the basic interest rate, the majority (almost 70%) expects the SELIC rate to close this year between 6.50% and 7.25% per annum.

However, a SELIC rate above 7.00% may remove part of the flows directed to risk assets, according to 65% of respondents.

Portfolios in Latin America

When analyzing the portfolio composition of Latin American managers, the main overweight positions (above market average) were concentrated in consumer discretionary, materials and financial companies.

The largest underweight positions (below market average) were concentrated in the consumer goods, utilities and telecommunications sectors.

According to half of surveyed managers, value companies should outperform growth companies, and names focused on economic recovery should stand out compared to companies that have benefited from social isolation measures.

Bank of America’s July survey was conducted with 32 Latin American managers, responsible for some US$53 billion in assets under management.