Jpmorgan Brazil Investment Share Discussion Threads

[loganair] 15/2/2019 13:48

Brazil's retail sales, one of the country's economic engines, grew 2.3 percent in 2018 over the previous year, the best result since 2013.

For this largest economy in Latin America, the economic growth rate will be 2.5 percent in 2019, according to the forecasts by the financial markets.

[loganair] 08/2/2019 09:56

The newly elected speaker of the lower house, Rodrigo Maia, said this week that pension reform will be the first item on Brazil’s legislative agenda and could be approved in both chambers by July.

Guedes said on Thursday that various options will be put to President Jair Bolsonaro. Guedes said the measures they are examining will form a comprehensive package.

The size, shape and scope of the government’s plan to overhaul Brazil’s social security system, which Economy Minister Paulo Guedes said could save the state around 1 trillion reais ($270 billion) in a decade, is still to be determined.

[loganair] 06/2/2019 10:16

Once the Pension reforms have gone through I can see this being positive for the JPB share price on 3 fronts:

1. The continued rise in the Brazilian stock market.
2. The strengthening of the Brazilian currency.
3. Postive sentiment returning thereby reducing the discount to Nav.

I can see of no good reason why these three could not see a rise of 20% from here in the share price of JPB.

[loganair] 28/1/2019 10:11

Accept your good point as I didn't take the difference in the exchange rate into account.

I still hope as sentinment in the Brazilian economy improves that the discount to Nav will narrow which could add 10p to the JPB share price.

[yf23_1] 24/1/2019 16:57

"Personal note - Considering the Brazilan stock market is at an all time high, JPB is 44% off from its all time high shows me how poorly the managers of JPB have done and are doing."

Real in 2011 was 2.7 to £, now 4.8 so although the index is at a high its measured in Reals not sterling.
Similar to Turkey situation.

[loganair] 23/1/2019 22:55

Brazil stocks scaled an all-time high on Wednesday and the currency firmed, boosted by the country's economy minister reiterating that much needed pension reforms remained the government's top priority.


In Brazil, the real rose 1.3 percent and posted its biggest one-day gain in three weeks, while the benchmark Bovespa index scaled new highs with gains being broad-based.

Brazil's economy minister Paulo Guedes told Bloomberg TV that pension reforms are the government's top priority and that more than half of the fiscal deficit will be cut with the reform. He also said that intended privatizations should generate at least $20 billion in 2019.

"Guedes once again enchanted the market," said an analyst at a brokerage in São Paulo.

Guedes was to participate in a press conference along with the Brazilian delegation at the World Economic Forum but the talk was canceled, with representatives of the government citing President Jair Bolsonaro's fatigue.

But, meetings between Guedes and some foreign investors on Tuesday may have been enough to get the message out about reforms and explain the theme of investor reforms, said Fernanda Consorte, an FX strategist at Banco Ourinvest.


Personal note - Considering the Brazilan stock market is at an all time high, JPB is 44% off from its all time high shows me how poorly the managers of JPB have done and are doing.

Hopefully when the pension reforms look as though they are going to happen will cause positive sentiment to return to JPB considerably reducing the Discount to NAV.

[loganair] 15/1/2019 15:58

JP Morgan’s global equity strategists are positive on emerging markets versus developed markets this year, but are ‘neutral’; on China whereas they prefer Brazil, Chile, Russia and Indonesia. In addition the analysts say global emerging markets are cheap, trading at lower price-to-earnings ratios than in their last bear market in 2015-16.

[loganair] 15/1/2019 15:24

If/When the Pension reforms are passed I can see JPB 20% higher then it is todays 68p.

[loganair] 15/1/2019 10:28

A recently published Fitch Solutions report , Brazil's economy will rally over the next couple of quarters, thanks to the positive business sentiment bolstered by Bolsonaro's new administration.

Brazil is suffering from a 130 billion reais ($34.76 billion) public deficit. Therefore, Bolsonaro's economic cabinet needs to come up with adequate measures timely in order to bring down the deficit. Per, Elizabeth Johnson, a managing director at TS Lombard , the time limit to pass reforms in Brazil is not too long. Johnson added, sentiment in the markets could dip if the administration is unable to make progress on the pension reform over the next months.

The pension system in Brazil has been affecting the economy for long. The current retirement age is 60 for men and 57 for women. As a result, the Brazilian systems need to pay high replacement rates - the percentage of a worker's pre-retirement income paid out through a pension program at a much lower age. This has resulted in a ballooning deficit.

[yf23_1] 11/1/2019 16:22

Bit of a wide discount now, about 19%.

[loganair] 11/1/2019 15:18

Brazil's Bolsonaro to Privatize Almost 100 Public Companies:

The goal of the new government is to reduce Brazil's deep debt by about 20%, mainly through privatizations.

Public Works Minister of Brazil Tarcisio Gomes de Freitas said that the newly-inaugurated government of Jair Bolsonaro wants to shut down or privatize about 100 publicly-owned companies.

"There are about 100 subsidiaries. We are talking not only about privatizations but also liquidating companies that do not make so much sense today," the minister told local media.

"These public company closures will help (us) use put budget funds to other priorities," added Gomes de Freitas.

During his campaign, Bolsonaro promised to close nearly all of the 138 state-owned companies. He was elected into office in October and sworn in on Jan. 1, 2019.

The goal of the new government is to reduce Brazil's deep debt by about 20%, mainly through privatizations.

Brazil is one of the countries with the largest number of state-owned companies, including Petrobras and Eletrobras. Local media reports that the right-wing Bolsonaro administration could sell off certain parts of their assets.

Minister of Economy Paulo Guedes confirmed last week that the administration plans to drastically cut the country’s pension system to supposedly save US$12.9 billion in the next decade.

Guedes said that privatizations, tax reductions, and pension reforms will be the "pillars" of the administration.

The minister acknowledged that the pension system reform will be his "first and biggest" challenge.

Since taking office, Bolsonaro has already lowered the minimum wage to 998 Brazilian reais (approximately US$257) from 1,006 Brazilian reais (approximately US$267).

[loganair] 08/1/2019 12:29

JP Morgan Looking ahead:

The recent recovery in emerging market (EM) and Asian stocks reflects more equity-friendly assumptions about the path of Federal Reserve rate hikes and the prospects for productive trade negotiations between the U.S. and China. We believe these developments are fundamentally bullish and may support a continued rebound in EM stocks in the near term.

This year’s market volatility is a reminder that sentiment can change quickly and that timing any resulting significant swings remains difficult.

We continue to advocate taking a long-term view on the growth opportunity and use periods of weakness to build exposure.

In Latin America, Brazilian stocks continue to benefit from positive sentiment, as many investors expect newly-elected President Bolsonaro to be successful in pushing through needed reforms and kick-starting the economy. However, a lot of potential good news may already be priced in to the market.

[loganair] 08/1/2019 12:21

Brazil stock market hits record high on Bolsonaro's potential reforms by Marcelo Rochabrun, Gabriela Mello:


Brazil’s stock and currency markets have romped into the New Year, lifted by growing confidence in the still-to-be-detailed economic policies of newly inaugurated far-right Brazil President Jair Bolsonaro.

Investor euphoria about potential free market reforms and privatizations four days into Bolsonaro’s presidency has lifted the country’s benchmark Bovespa index close to 5 percent to an all-time high, making it the best performing among major indexes worldwide.

“The Brazilian market has started the year very strongly, with a generalized optimism about the new government outweighing global concerns about economic deceleration in the U.S. and China,” said Pablo Spyer, director of Sao Paulo-based brokerage Mirae.

Bolsonaro - a former congressman and army captain who has surrounded himself with a cadre of generals and orthodox economists - campaigned on free-market promises of cost-cutting and privatizations.

Stock market gains have been led by companies like state-controlled utility Eletrobras, which has jumped 26 percent over three sessions. Newly named Energy and Mines Minister Bento Albuquerque said he might issue new shares in the company, diluting the government’s stake to the point where it no longer controls the company.

Another big winner has been Sabesp, the water and sewage company for Brazil’s most affluent state, Sao Paulo. Its shares are up 20 percent, the Bovespa’s second-highest surge after the state’s top finance official, former central banker Henrique Meirelles, said he would evaluate the possibility of privatizing the company.

Meanwhile, Brazil’s real currency, up around 4.5 percent so far this year, is the second-best performing in the world. In 2018, the real weakened almost 15 percent.

PENSION REFORM, BUT WHEN?

Despite investor optimism, Bolsonaro has offered few details about his economic policies, beyond what he had already said on the campaign trail.

But a major challenge ahead for the new leader and his economics czar, University of Chicago-trained economist Paulo Guedes, will be pushing through an unpopular pension reform that economists say is crucial to reducing Brazil’s ballooning budget deficit, which hit almost $35 billion, or over 7 percent of GDP, in 2018.

Without that, any recent market gains might prove ephemeral.

Bolsonaro said on Friday at an Air Force event that he aimed to raise the age of retirement for men to 62 years old and to 57 for women, effective five years after any legislation is passed.

His chief of staff, Onyx Lorenzoni, later said those details might be reworked, however.

On Wednesday, Guedes said he was committed to the pension reform, to cutting taxes and was evaluating a wave of privatizations, but added few details.

Analysts with Brazil bank BTG Pactual wrote in a report timed with Bolsonaro’s inauguration that pension reform must happen soon.

The Bolsonaro administration “must submit to Congress, in its initial period in power, a thorough pension reform and push hard for approval,” they wrote. “This is no easy task and will require political coordination that the new administration may or may not have."

[loganair] 02/1/2019 20:36

Avoid US stocks: Emerging markets is where to put your money in 2019, says Morgan Stanley:


Stocks in emerging markets have had a rough year but are tipped for a turnaround, according to Morgan Stanley, which predicts stable growth in those economies in 2019.

The investment bank has upgraded emerging market stocks from “underweight” to “overweight221; for the new year, while US equities were downgraded to “underweight.”

“We think the bear market is mostly complete for EM (emerging markets),” the bank said in its Global Strategy Outlook report for 2019, adding: “We are taking larger relative positions and adding to EM.”

Many investors withdrew from emerging markets throughout 2018 and bought more assets in the US due to a spike in bond yields. That will change, says Morgan Stanley, explaining that emerging markets will outperform developed markets.

Within the emerging markets space, Morgan Stanley’s key “overweight221; countries are Brazil, Thailand, Indonesia, India, Peru and Poland. The bank classes Mexico, the Philippines, Colombia, Greece and the United Arab Emirates as “underweight.”

Growth across EM has been forecast to slow slightly from 4.8 percent to 4.7 percent in 2019, before inching back up to 4.8 percent in 2020. US growth will moderate from the 2.9 percent estimates to 2.3 percent in 2019 and 1.9 percent in 2020, Morgan Stanley said.

“A major challenge for US assets next year is that they’re ‘boxed in’ – better-than-expected growth will simply mean more Fed tightening, while weaker-than-expected growth will raise slowdown risks, with limited scope for policy support,” its strategists wrote. “In a major change from the last 10 years, both good news and bad news creates problems for US markets.”

[loganair] 12/12/2018 23:08

What business leaders should expect from the Bolsonaro administration by Alec Lee:

To understand where Brazil’s economy will go following the election of Jair Bolsonaro, it’s necessary to first understand why the economic recovery to date has been so lethargic. This can largely be laid at the feet of one monumental failure of the current government under President Michel Temer: the lack of a comprehensive pension reform.

As it stands today, the World Bank estimates that Brazil’s debt to GDP ratio, which currently stands at approximately 75%, would rise to above 150% by 2030 without a significant fiscal adjustment led by reform to the country’s existing pension benefits. This bleak outlook, and the continued lack of clarity around a potential fix, is the major driver of why financial institutions have yet to aggressively increase lending and why businesses appetite for new investment has remained muted.

Jair Bolsonaro was the only candidate in the run-off election that supported a reform of the pension system, which may be why, despite his bombastic rhetoric on campaign, yields on Brazil ten-year treasuries fell by more than two percentage points and the currency ratio appreciated from 4.1 (Brazilian real to USD) to 3.62, between September and the day following the final electoral outcomes. (Since then, though, both indicators have moved slightly in the opposite direction, largely due to global market conditions). This demonstrates falling inflation expectations and a stronger outlook for growth, as markets believe he will likely achieve what others could not, and thus return the country to a steadier path of economic expansion.

There are still fundamental concerns over whether Bolsonaro, once being sworn in on January 1st, will pursue some of his potentially more destabilizing policy proposals, such as liberating gun ownership or reducing restrictions on the exploitation of delicate areas in the Amazon rainforest for economic gain. While my firm Frontier Strategy Group is forecasting growth in Brazil at 3.0% in 2019 up from 1.6% in 2018, we believe both Bolsonaro’s extreme position on some subjects, and perhaps more importantly his lack of experience in a position of true power, are risks to his ability to sustain the political support necessary to pass the reforms that Brazil needs. Likewise, political miscalculation have proven to come with heavy consequences for the country’s past leaders, with just two of the four directly elected presidents under the current constitution having actually completed their last terms in office (and one of those who did is now imprisoned for corruption and money laundering).

Our forecasts suggest that while Bolsonaro is likely to pass pension reform in 2019 (both raising the retirement age and also reducing benefits), he is unlikely to make dramatic inroads into addressing other ills of the market, such as its burdensome tax system, its challenging labor code, or its underfunded infrastructure. And despite some of his past statements, we also don’t see Bolsonaro as an immediate threat to Brazil’s democratic institutions.

Bolsonaro did not win with as much popular support as it might first appear — he took 55% of the valid votes, but just 43% of the total electorate after considering blank votes and abstentions. He also does not have the sustainable super majority in Congress needed to pass constitutional amendments without significant efforts at coalition building (which require 308 votes in Brazil’s lower house and 49 votes in the Senate – in rather two votes through each body). While Bolsonaro’s party picked up 44 additional seats in the lower house, to hold 52 total seats, there remain 30 parties in Congress, making coalition building a matter of constant horse trading.

For all of the differences between Bolsonaro and his predecessors, he will face many of the same governing challenges that they did.

[loganair] 10/12/2018 20:30

The end of the year marks high hopes for Brazil in 2019 by ING Bank:

The economic recovery hoped for in 2018 didn't really materialise, but the year ends with a post-election optimistic glow. Surging confidence indicators and continued monetary stimulus are all good signs for a faster recovery, but the sharp acceleration that some expect for 2019 remains conditional on Congress's approval of fiscal reforms.

2018 - a year of frustrated recovery expectations:

Latest data has confirmed Brazil’s recovery has persisted but remains frustratingly slow. GDP is likely to grow at just 1.2% in 2018, which pales when compared to market expectations at the beginning of the year, which were close to 3%.

Despite the expansion seen since the end of the recession, GDP is still five percentage points below the levels seen in 2013, in real terms.

Growth expectations for 2019 have begun to climb, after remaining at 2.5% for a prolonged period and the post-election surge in some business and consumer confidence indicators suggests near-term growth prospects have indeed improved. However, even though we agree that election results have been positive for economic activity, as they improved the outlook for fiscal consolidation, the crucial question about the success of the fiscal effort remains.

Despite the recovery in confidence, fiscal uncertainties are likely to keep investors and consumers relatively cautious in 2019. In particular, a robust recovery depends on the appetite of banks and borrowers and the progress of capital investment, especially infrastructure, where the bottlenecks prevail.

In our view, this may only happen after there is more clarity about the fiscal trajectory. The passage of the fiscal consolidation agenda, for example, the social security reform remains a pre-condition for a sustained recovery in long-term business sentiment.

The recently-elected Congress will be inaugurated on 1 February, but the new administration’;s strategy vis-à-vis the social security reform is still unclear. We still don’t know if crucial votes will happen immediately, (i.e. February/March) in case Congress just resumes the debate of the reform introduced by President Temer, or later in the year, likely in 3Q, if a new draft reform is submitted to Congress.

In our base-case scenario, reform approval is more likely during 3Q, which would be more consistent with GDP growth close to 2.5% next year. However, an early approval (by the end of 1Q) would add material upside to our forecast, possibly towards 3-3.5%. Alternatively, failure to approve the reform in 2019 would likely trigger major instability in local markets and could crush hopes of a recovery.

Monetary policy takes a back-seat:

The Brazilian central bank meets this week and, once again, it should keep the policy rate on hold at 6.5%. More importantly, the forward guidance should shift from cautiously hawkish to firmly neutral.

We expect the guidance to reinforce the data-dependent nature of future policy decisions and the greater policy flexibility required in light of heightened (domestic and external) uncertainties. But policymakers should also indicate the balance of risks for inflation have become more balanced and is no longer “asymmetric221;, skewed to the upside.

This shift would be consistent with the lower-than-expected inflation seen since the Bank’s last meeting. Over the past month, this has been helped by lower electricity/fuel prices and consensus expectations for 2018 have dropped by 70bp, to 3.7% now.

This is in line with our forecast of 3.8% and compares with the 4.5% target for the year. For 2019, our initial forecast is 3.7%, lower than the market consensus of 4.1%.

The bank’s own inflation forecasts should also fall, especially for short-term horizons. Those forecasts should remain in line with the 2019-20 targets (4.25% and 4.0% respectively), even in the reference scenario, in which the policy rate remains unchanged at 6.5% in the policy-relevant horizon.

In our view, as long as social security reforms remain on track for approval in 2019, the Brazilian Real should remain relatively well-behaved, and the central bank should keep the policy rate unchanged. Despite the rally in local bonds seen since October, the local curve still incorporates 125bp rate hikes next year, along with 200bp in 2020.

If the social security reform fails to advance in Congress in a timely fashion, i.e. still no approval by the end of 3Q, local assets are bound to suffer, with USD/BRL likely to rise above 4.0, worsening inflation expectations and triggering a hawkish monetary policy shift, with the central bank possibly launching a gradual rate-hiking cycle.

Alternatively, if the reform gets approved, USD/BRL is likely to consolidate in the 3.7-3.6 range, after initially overshooting below 3.5. In this scenario, the market might expect the central bank has room to re-launch the monetary easing cycle. In our view, rate cuts could be considered, at the end of 2019/early-2020, depending on the depth of the fiscal adjustment set in.

A dovish monetary policy stance would also be consistent with Brazil’s ample spare capacity, high unemployment, fully-anchored inflation expectations, and the structural changes taking place in the local credit market, with a reduced presence of state-owned banks.

Ultimately, a lasting fiscal policy adjustment could pave the way for monetary policy to stay expansionary for at least a few years, without risking turning the policy mix excessively expansionary.

A suspenseful 2019: Will the fiscal reforms finally get approved?

Politically, the transition period has been less fruitful than initially thought. Expectations that Congress would approve important legislation before the end of the year have, so far, not materialised. None of the legislative initiatives initially considered, such as the transfer of oil exploration rights, central bank independence or the social security reform proposed by President Temer, advanced much.

Members of Congress have promoted initiatives that clash directly with president-elect Jair Bolsonaro’s pro-market agenda. This includes a bill to increase political interference in regulatory agencies, and that eases fiscal constraints for municipalities, along with other measures calling for tax forgiveness.

Ineffective political coordination by the new administration, which takes office on 1 January, helps explain the disappointing results. This may reflect, among other things, a combination of unpreparedness and the tiny size of Bolsonaro’s party (PSL) in the current Congress.

But it also could reflect bigger problems, such as a deficit of savvy political negotiators in his team and the challenges he will face in his goal to change the way the executive negotiates with Congress.

On a positive note, the senior-level cabinet appointments announced in recent weeks have been very well-received. Particularly encouraging has been the cohesive vision suggested by the economic team, helmed by Paulo Guedes as Economy Minister. This includes new heads for the central bank (Roberto Campos Neto), state-owned banks including BNDES, Caixa and Banco do Brasil and Petrobras. The reappointment of Mansueto de Almeida as head of the National Treasury is also a favourable development.

The newly created roles of a Secretary for Privatization and a Secretary for Social Security are noteworthy new initiatives, highlighting the importance of the two areas for the incoming administration.



Overall, we expect investors to remain narrowly focused on assessing Bolsonaro’s ability to approve his legislative agenda. Some of the near-term catalysts that could alter that assessment include political negotiations for the election of the presidencies of the Lower House and the Senate, along with the announcement of the new legislative agenda, especially whether Bolsonaro will support the approval of the social security reform already under debate in Congress.

In particular, we suspect local assets would react well to the re-election of Rodrigo Maia to lead the Lower House, with Bolsonaro’s support, and to a political agreement to finish the vote on the social security reform proposed by President Temer.

[loganair] 21/11/2018 20:51

Brazil markets cheered by pro-business make-up of Bolsonaro team:


Investors on Friday welcomed the appointment of Santander executive Roberto Campos to head Brazil’s central bank as a sign President-elect Jair Bolsonaro will entrust economic and monetary policy to a market-friendly team of economists.

Sao Paulo’s Bovespa stock index surged as much as 2.65 percent on Friday and Brazil’s real currency strengthened 1.2 percent against the dollar following Thursday’s announcement by incoming finance minister Paulo Guedes.

Analysts said Bolsonaro, a former army captain and lawmaker who has admitted having scant knowledge of economics, was assembling an experienced economic team to implement his plans to slash government spending, simplify Brazil’s complex tax system and sell off state-run companies.

UBS economist Tony Volpon, a former central bank director, called these announcement “very positive” in a note to clients.

[loganair] 08/11/2018 23:52

Jair Bolsonaro has vowed to overhaul Brazil’s economy and align the country more closely with the United States, with uncertain implications for its relations with China.

Brazil needs sweeping changes that will boost growth and eliminate the deficit:

Pension reform. Pension spending is the biggest driver of the deficit, accounting for more than 8 percent of Brazil’s GDP. With the country’s population aging fast, that could more than double in coming decades.

Privatization. Selling off Brazil’s “crown jewels,” the state firms that dominate the economy, including oil giant Petrobras, the power company Electrobras, and banks such as Banco do Brasil.

Tax cuts. Slashing taxes and simplifying the tax code will spark private investment and create ten million jobs.

It’s unclear, however, how committed Bolsonaro is to this vision. Pension reform could be a politically explosive issue, as outgoing President Michel Temer’s failed efforts demonstrated. However, without action on this front to stabilize Brazil’s finances, investors could reverse their positive reaction to Bolsonaro’s win.

Anti-China sentiment may be the biggest complicating factor. Bolsonaro and his military supporters see state-owned companies as a national security matter, and worry that selling them will allow China to buy up critical infrastructure.

Caught Between Beijing and Washington?

The Bolsonaro administration takes over on January 1, after which its legislative priorities will be clearer. Yet, the contours of tensions over China are already emerging.

The Trump administration praised Bolsonaro’s election, seeing him as part of an emerging axis of pro-U.S. leaders in Latin America, and has floated a potential bilateral trade agreement.

But while Bolsonaro would likely welcome a new alignment with the United States, Trump’s trade war with Beijing has actually boosted Brazilian exports to China—and analysts say that Bolsonaro could struggle to deliver growth without Chinese help.

[loganair] 29/10/2018 08:45

Brazilian president-elect Jair Bolsonaro’s top economic advisor and proposed economy minister, Paulo Guedes, said on Sunday that reforming the country’s costly pension system would be a top priority for his government.

[loganair] 24/10/2018 13:48

The world’s biggest buyer of soybeans, China, which has been curbing purchases of the crop from US, now seeks to stop imports altogether. The biggest alternative source is Brazil.

[loganair] 20/10/2018 20:33

Latest opinion polls from the Datafolha polling agency suggest that Bolsonaro is heading for a landslide victory against his centre-left rival Fernando Haddad of the Workers' Party (PT) on October 28 with the 59 percent of intended votes compared with 41 percent.

The dramatic surge in Brazilian markets is not the only factor lifting animal spirits among senior business leaders and financiers in São Paulo this week. The prospect of right-wing congressman Jair Bolsonaro winning the presidency and implementing a liberalizing economic program has kindled hopes among many that decades of Brazilian statist policies are about to be reversed.