EMTA Forum in São Paulo - March 23

EMTA FORUM IN SÃO PAULO
Thursday, March 23, 2017

Sponsored by


Blue Tree Premium
Av Brigadeiro Faria Lima 3989
São Paulo SP

3:30 p.m. Registration

4:00 p.m. Panel Discussion

“Opportunities and Challenges for Brazil 2017”
Themes to be discussed will be the global economic outlook, prospects for growth, and investment opportunities in Brazil and Latin America.

Rafael Guedes (Fitch Ratings) – Moderator
Murillo de Aragão (GlobalSource Partners and Arko Advice)
Luiz Fernando Figueiredo (Mauá Capital)
Adauto Lima (Western Asset)

5:00 p.m. Cocktail Reception

Additional Support Provided by Fitch Ratings.  

Attendance is complimentary for EMTA Members / US$695 for non-members. 

Registration for this event is now closed.  We look forward to seeing you at a future EMTA Event. 

Time to Sit in the Car and Watch the Rain Go Away, EMTA Brazil Panel Concludes

EMTA’s annual Forum in São Paulo took place on March 23, 2017, with approximately 75 EM market participants in attendance. The event was sponsored by MarketAxess with the additional support of Fitch Ratings. Speakers focused on the political and economic outlook for Brazil, discussing risks while also cautiously expressing hope for the future. “Let’s sit in the car and watch the rain go away,” summarized panelist Luis Fernando Figuereido (Maua Capital).

Fitch’s Rafael Guedes commenced the event by reviewing his firm’s BB rating on Brazil. Guedes reminded attendees that Fitch adopted a negative outlook on its rating in May 2016, reflecting the possibility of a downgrade within 12-24 months. “Our position is to wait for greater clarity,” he stated, noting that factors worthy of attention included the reform progress, the social impact of high unemployment, the continuing car wash scandal and the possible annulation of election results.

Greater confidence has been building, Guedes noted, with inflation approaching official targets, and the Central Bank improving credibility and to anchoring inflation expectations. Economic growth should rebound to 2% next year, with Brazil largely immune to potential protectionism because of its relatively closed economy, he argued.

Murillo de Aragao (Arko Advice and Global Source Partners) offered his views on the outlook for Brazil politically. De Aragao first underscored the importance of political analysis in a country as complicated as Brazil, and highlighted the paradoxical situation of a deeply unpopular president combined with a government that has recovered and, “is actually functioning. “

“What the current government has accomplished is equivalent to what former President Cardoso did,” he stressed, listing the passage of the government spending cap law, the new rule on local content, and the approval of a program for investment partnerships, among other factors. “In the best of times, fulfilling this agenda would be a dream,” he insisted. Yet these impressive results were being somewhat overlooked, because of concerns of either a new revelation which would force President Temer out of office; or the possibility that the TSE would annul the election results. “Each of these has a 50% chance of becoming true,” in his view, while recognizing that there has already been ample time for new revelations from the Car Wash scandal.

The social security reform will be passed, he argued, but not before some deal-making. “Maybe the final reform bill won’t please the market, but it will improve the budget situation significantly,” he commented. The car wash investigation and trials will continue for at least three years, remaining a source of anxiety for foreign investors. “The uncertainty will last for a long time…it will be a bumpy flight and will be a test for the market,” he concluded.

Figuereido stated that it was impossible to discuss the Brazilian economic outlook without factoring in the political scenario. He expected that April and May 2017 would be pivotal months, as plea bargains in the Odebrecht case were expected to become public, and the reaction by Temer and Congress would be known. Welfare reform was likely to be passed, but Figuereido believe that the final form of the approved bill was unknown.

“We can say with confidence that we are at the start of a recovery,” he argued, pointing to the slow and deliberate steps by the Central Bank to cut interest rates, and reduced inflation. He predicted that the Central Bank was now more likely to enact 100 bp rate cuts, with a likely end-target of 9%. “There is a lot of room to recover and grow before inflation picks up,” he concluded.

Western Asset’s Aduato Lima agreed that it was likely that Brazilian growth had reached a nadir, with a potential recovery in Q1, and positioned himself as being on the more optimistic end of the panel. He believed that a gradual approach to social security reform was probably the best path forward, while underscoring the seriousness of the issue, lamenting that the process had not started long ago, and cautioning that it was likely to be delayed by politics.

The panel turned to the 2018 presidential race. De Aragao believed that the government still had a couple of months to push the reform process; if progress was made, he believed additional momentum was possible in the second half. The race would be clearer once the full revelations from the car wash scandal were known, in his view. Lima added that there remained a risk that additional members of the Brazilian political establishment would be charged with crimes, leaving it open as to whom would emerge a strong presidential candidate.