Yesterday I posted the early read on Brazil off Asia-session futures and ETFs, with real futures down around 10%.
Yesterday I posted the early read on Brazil off Asia-session futures and ETFs, with real futures down around 10%. Monday's actual session came in worse. The Ibovespa closed down 13.9%, its biggest one-day decline since March 2020, and trading was halted for 30 minutes after a 10% drop triggered the circuit breaker.
The currency told the same story. The real fell more than 11% against the dollar in early spot trading, one of its biggest intraday declines on record.
Then Wall Street weighed in. Citi closed both its overweight call on Brazilian equities and its long position on the real, saying "the market was long going into this, which makes an overshoot plausible.
Given the outcome of the election, we close our Brazil risk." BCA Research went further and downgraded Brazilian equities, local-currency bonds and sovereign credit to underweight, calling the stocks a "value trap" and warning of a possible "vicious cycle." Both point to weaker prospects for fiscal discipline and structural reform under Lula's new term.
What stands out to me is Citi's line about positioning. They're saying the move is partly about a crowded trade unwinding, and they're stepping aside anyway. When the bulls who acknowledge a possible overshoot still won't stay in, I'd want to know who the marginal buyer is before calling a bottom.
$EWZ
Sources:
Reuters (via Devdiscourse): https://www.devdiscourse.com/article/international/3997807-citi-bca-downgrade-brazilian-assets-after-lula-comeback
Investing.com: https://uk.investing.com/news/stock-market-news/bca-cuts-brazil-stock-rating-on-lula-win-fiscal-concerns-93CH-4933107
Straits Times: https://www.straitstimes.com/business/trading-on-brazils-stock-exchange-halted-following-lula-re-election
Not financial advice. For informational and educational purposes only.
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