Buenos Aires — Investors who bet on Argentine Certificates of Deposit (Cedear) whose underlying assets are Brazilian assets have had positive returns throughout 2022, something very valuable in a world that is submerged in a bear market.
Nevertheless, what can happen with those same papers from the second electoral round, in which Jair Bolsonaro and Luiz Inácio will face each other Lula da Silva, is a complete unknown.
Although the theory could indicate that the capitals tend to prefer the most pro-market candidate (in this case, the current president Bolsonaro), the reading in Brazil is somewhat more complex.
Economist and market expert Leonardo Chialva, partner at Delphos Investment, proposed three possible scenarios regarding the ballotage on Sunday, October 30, and for each of them it estimated a probability of occurrence and projected what could happen to Brazilian financial assets.
Bolsonaro’s re-election scenario
In view of the results that occurred in the first round, it seems difficult for Bolsonaro to reverse the situation. “There is a low chance, say 20%, of it happening”, detailed Chialva.
If this chance were given, the executive estimated: “Risk assets could rise in the short term, but then doubts would arise from abroad. let’s remember that Bolsonaro was not flooded with money by international fundsas happened here with (Mauricio) Macri, despite all the economic reforms made by his Economy Minister Paulo Guedes”.
In other words, a victory for Bolsonaro, according to Chialva, would immediately generate a good reaction from Brazilian assets, from local investors, but he would still have the same problems he has in conquering abroad. “They see him as a toad from another well, because he is not the establishment, he is not interested in climate change…”, he pointed.
Scenario wins a Lula light
Chialva assigned a 60/70% probability that Lula will return to the Presidency, but a moderate version. without confrontational spirit. “Lula comes to these elections with the support of the entire establishment. It is as if (Néstor) Kirchner had presented himself with the support of Paolo Rocca, Bulgheroni, Grupo Clarín and La Nación”, he compared.
Given this scenario, Chialva considered that Brazilian assets could fall in the short term, but there could be an improvement in the medium and long term if Lula arrives with a profile open to the world, with no desire for revenge and with pro-market technicians.
“There may be a short reaction wait and see, the locals selling and then bringing in money from abroad, with a Brazil that returns to the global concert, based on the Paris agreement. A Lula concerned about climate change would allow global funds to take positions in Brazil”, said the Delphos Investment executive.
Chialva attributes a 10% probability to this scenario, but it would be, according to his view, the most serious for holders of Brazilian shares. “If Lula takes refuge in his party and returns with a vengeful vision against those who put him in prison, the margin of asset fall is very large”.
What are the most important Brazilian Cedear
Since January 18 of this year, ETFs can be traded in Argentina in the Cedear version and one of them is the EWZ, made up of the main Brazilian shares.
So far this year, the EWZ has risen 12% measured in dollars with liquidity, although it fell 20% compared to the maximum it marked in April of this year.
Other Brazilian Cedears that are making a strong presence on the Buenos Aires Stock Exchange are: Petrobras (PTR4), Itau-Unibanc (ITUB), Voucher (OKAY), Bradesco (BBDC4), Santander Brazil (SANB11), AMBEV (ABEV3) and Embraer (EMBR3).
Another company that operates via Cedear and has part of its fate tied to Brazil is MercadoLibre (MELI), since it is its main market. However, the drivers that move the MELI share respond more to what happens with the technology companies listed on Nasdaq.