SAO PAULO: Brazilian assets trailed global peers on Tuesday as political concerns start to weigh on investor sentiment two months before the presidential election.
The real ended the session 1% lower, leading losses among emerging market currencies, while the benchmark Ibovespa stock index fell 2.5%, the most since March.
So-called DI contracts climbed. JPMorgan downgraded Brazil’s equities to “neutral” from “overweight”, citing the potential for market volatility ahead of the election.
Incumbent Luiz Inacio Lula da Silva holds a nine-point lead over challenger Flavio Bolsonaro ahead of the October vote, according to a CNT/MDA poll, also released on Tuesday.
The right-wing senator has been plagued by woes including a public family feud and his ties to Daniel Vorcaro, the jailed former banker who’s at the centre of a massive fraud probe.
The outlook is bad news for investors who worry about Lula’s commitment to controlling public spending.
“Local markets are finally starting to appreciate the idea that Lula has a higher probability of winning the election than has been priced,” said Brendan McKenna, Latin America FX & Rates Strategist at Societe Generale.
Lula would beat Bolsonaro 48% to 39% in a runoff scenario, according to the CNT/MDA poll.
The lead narrowed from the prior survey in June, which put Lula ahead by 13 points. But, it is larger than in other polls that have shown a smaller advantage for the leftist incumbent.
Lula held a three-point lead in a runoff scenario in a BTG Pactual/Nexus survey published on Monday.
A Genial/Quaest survey released last week found him ahead by five points, while he led by six points in an AtlasIntel survey for Bloomberg News published in late July.
CNT/MDA interviewed 2,002 voters from Aug 5 to 9. The survey has a margin of error of plus or minus 2.2 percentage points.
Earlier on Tuesday, a slower inflation print and the minutes for the central bank’s last interest rate reduction raised expectations for additional monetary easing, also pressuring the currency.
Brazilians will go to the polls on Oct 4 for the first round vote, with a runoff likely to take place three weeks later. — Bloomberg
