stocks rally likely near end as impeachment looms -
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[April 01, 2016]
By Silvio Cascione and Miguel Gutierrez
BRASILIA/MEXICO CITY (Reuters) - A recent
surge in Brazilian stocks has probably run its course, a Reuters poll of
equity market strategists showed on Friday, as investors' optimism about
the growing chances that President Dilma Rousseff will be impeached is
lessened because of concerns about her possible successor.
The same survey also suggested limited upside for Mexican stocks
after the country's benchmark IPC index hit a nearly two-year high
earlier this month.
As in recent Reuters polls on Brazil's economy and foreign exchange
market, equity strategists do not have a strong consensus on the
outlook for the nation's stocks in coming months, given the
heightened political crisis.
The 14 forecasts collected in the past week for the benchmark
Bovespa index at the end of 2016 <.BVSP> ranged from 42,000 to
65,000 points, implying a drop of 16 percent or a rise of 30 percent
from Thursday's close.
However, only three strategists forecast the index at or above
60,000, a line not crossed since 2014. The median forecast in the
survey projected the Bovespa at 52,150 points at year-end, just 4
percent above the current level.
Brazilian stocks rocketed nearly 40 percent from a 2009 low in
January, catching many off-guard as the political crisis appeared
more likely to abbreviate Rousseff's presidency.
The rally contrasted with the poor state of Brazil's economy, which
has been going through the second year of its worst recession in
more than a century. Output is set to shrink more than 3 percent for
the second straight year, partly due to one of the world's highest
interest rates <BRCBMP=ECI>, at 14.25 percent, and nearly
double-digit inflation <BRCPI=ECI>.
Strong demand from foreigners helped boost local shares after a
steep depreciation of the exchange rate made them cheap in dollars.
But markets have started to temper their optimism because of
concerns that Michel Temer, leader of the fractious PMDB party,
would replace Rousseff if she is impeached as most analysts expect.
Despite promises from Temer of market-friendly measures to take
Brazil out of a crippling recession, investors have questioned his
ability to put together a solid coalition in a fragmented parliament
as he and other PMDB leaders are investigated in the same corruption
probe implicating Rousseff and her party.
"A Temer government would be more market-friendly, but we suspect
that much of the good news is now priced in," said Neil Shearing,
chief emerging markets economist at Capital Economics.
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Some analysts remain bullish, such as strategists with HSBC and Bank
of America Merrill Lynch. Both banks recently moved Brazil to
"overweight" in their portfolios.
"An improvement on the political front would allow fiscal measures
to get congressional approval, resulting in a much stronger fiscal
adjustment and a confidence shock," BofA Merrill Lynch analysts
They also bet on upcoming interest rate cuts by the central bank as
inflation heads down.
In Mexico, the median forecast of 14 strategists for the IPC index
<.MXX> at year-end stood at 47,500 points. In the first quarter,
Mexican shares had their best quarterly performance since 2012,
helped by diminished prospects of interest rate hikes in the United
States and more stable oil prices.
Mexico exports mostly manufactured goods to the United States, its
top trading partner. Last year, weakness in U.S. industrial output
weighed on Mexican growth, and private consumption has helped
support the economy.
(Editing by Lisa Von Ahn)
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