SÃO PAULO, BRAZIL – Brazil’s equity benchmark Ibovespa index closed on Wednesday, June 19th, above the 100,000 mark for the first time on record as dovish signals from the Federal Reserve added support to global asset prices, potentially signaling increased odds for rate cuts in Brazil.
The index rose 0.9 percent to 100,303 on Wednesday, pushing gains this year to 14 percent.
Investors have been seeing increased likelihood of the approval of President Jair Bolsonaro administration’s flagship social security overhaul as fewer lawmakers seem inclined to vote against it.
The optimism regarding the bill — which is seen as a key issue in tackling the country’s budget deficit — has partially countered disappointment with the nation’s slower-than-expected economic recovery.
According to hedge fund firm Bahia Asset Management, Brazilian stocks are the most attractive asset in the local market, and Ibovespa may gain another 20 percent by year-end, to about 120,000.
The fund expects growth to pick up from the second half of the year onward and the reform’s advance to unlock other economic measures.
“The most important driver is productivity,” said Will Pruett, a Boston-based money manager at Fidelity. “So I’m looking for reforms that address productivity, such as the tax reform and the privatization agenda,” Pruett said.
The perspective of lower rates for a longer period has also been supportive. Economists expect Brazil’s central bank to cut its benchmark interest rate — which is at a record low of 6.50 percent — to 5.75 percent by the end of the year, according to BCB’s weekly survey.