Brazil Stocks Hit New All-Time High

(Bloomberg) -- Brazil’s equity benchmark Ibovespa index reached a new all-time high on the back of expectations that an overhaul in the country’s social security system will be approved by Congress.

The index rose to 100,000 for the first time on Monday, pushing gains this year to 14 percent.

“It’s difficult to see another story as positive as Brazil’s in the region,” said Emy Shayo, JPMorgan Chase & Co.’s head of Latin America equity strategy. The bank sees a “virtuous cycle” amid tighter fiscal policy and easing monetary policy, a combination that “attracts external capital and helps companies to recover a lot of what they lost in terms of profits," according to Shayo.

A lot of investor optimism with Brazil hinges on President Jair Bolsonaro’s market-friendly agenda, which includes the privatization of inefficient state-owned companies, fiscal reforms and other measures to shore up Latin America’s largest economy. Since Congress resumed activities in February, investors have been closely monitoring how the newcomer president will gather support from legislators to push through the controversial pension bill. Previous administrations failed to approve the proposal, which is seen as key in order to tackle the country’s budget deficit and ensure the sustainability of the economic recovery.

“The pension bill should be approved by the lower house in June,” said David Beker, Bank of America Merrill Lynch’s Latin America equity strategist. Beker sees the Ibovespa ending 2019 at 120,000 on the back of growing profits and expectations of a better fiscal outlook.

Despite the fresh records, foreign investors remain skeptical about the stock rally, which has been largely fueled by locals. Foreigners pulled 597 million reais ($157 million) out of Brazil stocks this year as of Mar. 14, according to exchange data compiled by Bloomberg, after the biggest yearly outflow since the global financial crisis last year.

To contact the reporter on this story: Vinícius Andrade in São Paulo at vandrade3@bloomberg.net

To contact the editors responsible for this story: Courtney Dentch at cdentch1@bloomberg.net, Julia Leite, Ney Hayashi

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