Brazil trades on borrowed time

Brazilian stocks have taken off since Jair Bolsonaro took office. But may return to earth just as quickly.

Optimism about Brazil has been running high. Latin America's largest economy has announced free-market reforms under right-wing president Jair Bolsonaro. Brazilian stocks have already risen rapidly in anticipation.

They have gained 13% in dollar terms in four weeks, beating the MSCI Emerging Markets and the S&P 500, notes Kenneth Rapoza on Forbes. Last year, as Bolsonaro's election was gradually priced in, Brazilian stocks gained 10%.

The centrepiece of the reforms consists of changes to pensions, a severe drain on state expenditure. Public sector workers can currently retire after only three decades on the job. They can finish working at any age if they have paid into the system for 35 years, or 30 for women. The plan now is to increase the retirement ages to 62 years for men and 57 for women.

Brazil's economy minister Paulo Guedes has promised the gradual overhaul will save $350bn over ten years and insists that it will be approved "within five months". Tax reforms and the privatisation of state-held companies would follow.

"Guedes is promising the market the moon," as Rapoza puts it. But he is unlikely to deliver. It's far from clear the government can muster the three-fifths majority needed in Congress. If the effort fails, Brazilian assets may return to earth just as quickly as they have taken off.

Recommended

Russian stocks suffer as the world fears it will invade Ukraine
European stockmarkets

Russian stocks suffer as the world fears it will invade Ukraine

Despite a booming economy, Russian stocks look extraordinarily cheap – but if it invades Ukraine, the Russian stockmarket will become all but uninvest…
14 Jan 2022
Erdogan’s risky bluff to save the Turkish lira
Currencies

Erdogan’s risky bluff to save the Turkish lira

Turkey's autocratic president has said the government will guarantee lira deposits against further deterioration in the exchange rate. Few people are …
7 Jan 2022
Myanmar: a coup, a civil war, a crisis and China
Emerging markets

Myanmar: a coup, a civil war, a crisis and China

Myanmar was heading in the right direction after decades of isolation before the army seized control again in February. Now the outlook is increasingl…
24 Dec 2021
Will emerging markets have a better 2022, or is it downhill from here?
Emerging markets

Will emerging markets have a better 2022, or is it downhill from here?

Emerging market equities had a dismal year in 2021. John Stepek asks if 2022 will be any better, and takes a look at some of the most promising areas …
23 Dec 2021

Most Popular

Ask for a pay rise – everyone else is
Inflation

Ask for a pay rise – everyone else is

As inflation bites and the labour market remains tight, many of the nation's employees are asking for a pay rise. Merryn Somerset Webb explains why yo…
17 Jan 2022
Temple Bar’s Ian Lance and Nick Purves: the essence of value investing
Investment strategy

Temple Bar’s Ian Lance and Nick Purves: the essence of value investing

Ian Lance and Nick Purves of the Temple Bar investment trust explain the essence of “value investing” – buying something for less than its intrinsic v…
14 Jan 2022
US inflation is at its highest since 1982. Why aren’t markets panicking?
Inflation

US inflation is at its highest since 1982. Why aren’t markets panicking?

US inflation is at 7% – the last time it was this high interest rates were at 14%. But instead of panicking, markets just shrugged. John Stepek explai…
13 Jan 2022