Wall Street strategists who urged clients to load up on Brazil assets after Flávio Bolsonaro emerged as the frontrunner for president are about to learn whether their calls led to profits or losses ahead of Sunday's too-close-to-call runoff against incumbent Luiz Inácio Lula da Silva.
Bolsonaro's first-round lead spurred upgrades from UBS Global Wealth Management to Morgan Stanley, with forecasts for Brazilian stock gains as high as 25%. JPMorgan Chase & Co. turned positive on the currency, and Citigroup Inc. encouraged investors to buy across asset classes. Brazilian stocks have climbed 13% in dollar terms this month, and the real has surged 2.5% against the greenback, one of the best performances in emerging markets.
The positioning now leaves investors vulnerable to a reversal. The race is virtually tied after Lula promised to spend even more, while Bolsonaro has offered few details on the fiscal overhaul investors are counting on. A Datafolha poll published Thursday shows the two candidates tied at 50%. A disappointing result risks erasing the recent rally.
Some investors remain bullish. Fund managers overseeing a combined $90 billion have grown more optimistic about Brazilian equities, according to a Bank of America Corp. survey, and foreign investors have poured about 20 billion reais ($4 billion) into local stocks this month. Others are more cautious: Legacy Capital has pared back its risk exposure, and Bradesco Asset Management has urged caution in credit as household and corporate delinquencies reach records.
Source: Bloomberg Markets · Summarized by HeadlinesBriefing