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S&P Downgrades Brazilian Credit Rating to BB-

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Standard & Poor’s (S&P) downgraded Brazil’s sovereign credit rating from “BB” to “BB-” on Thursday. The rating was already in Junk territory, but it is now three steps below investment grade. On the other hand, the perspective for the rating has changed from negative to stable.

The downgrade was already expected by the market due to difficulties the government is facing to get the pension reform approved.

In the justification for the decision, the agency pointed out as “one of the main weaknesses of Brazil” the delay in approval of fiscal measures that rebalance the public sector accounts.

“Despite several advances by the Temer administration, Brazil has made slower-than-expected progress in implementing significant legislation to address structural fiscal issues and rising levels of indebtedness”, S&P said in a statement, adding that uncertainties of the 2018 elections aggravate this scenario.

In addition to the difficulty in approving reforms with long-term effects, S&P also pointed out that “there have been setbacks even with short-term fiscal measures – such as the decision to suspend the postponement of salary increases for public sector employees”.

Click here to read more about Brazilian Credit Rating

Fitch keeps the Brazilian credit rating at BB, with negative outlook

Fitch Ratings reinforced Brazil’s credit rating on ‘BB’, with a negative outlook. That is, with the possibility of the classification being revised downwards in the future.According to the agency, the country’s ratings is limited by the structural weaknesses in public finances and high government debt, weak growth prospects and weaker governance indicators than the country’s peers, in addition to the recent history of political instability.

These weaknesses, Fitch added, are offset by the economic diversity of Brazil and consolidated civil institutions.

The negative outlook reflects the continuity of uncertainties related to the sustainability and strength of the Brazilian economic recovery, the prospects for medium-term debt stabilization and the progress of the legislative agenda, especially the pension reform.

Fitch expects a modest cyclical recovery in Brazil, with growth accelerating from 0.6% in 2017 to an average of 2.6% during 2018 and 2019. Consumption began to recover, sustained by lower inflation, which drives wage gains, stabilization of the unemployment rate and a recovery of consumer credit. A recovery in investment is also expected in the coming years.

According to the agency, the risks that can cause the government not to reach its fiscal goals in the short term include a weaker economic recovery and the difficulty in cutting public spending, especially in the election year. The implementation of the pension Reform and other adjustments will be necessary to ensure that expenditures meet the target in the medium term.

Fitch projects that Brazilian public debt will continue to grow during the forecasted period, even taking into account the impact of the National Treasury’s loan payments anticipated by the National Development Bank (BNDES) between 2017 and 2018. The agency projects that debt will reach 76% of GDP in 2017 (above the median of the “BB” countries, 45%) and advance to 80% in 2018.

Brazil’s current account deficit is expected to fall below 1% in 2017, according to Fitch projections, and should remain below 2% in the period projected by the agency. The deficit fell 80% during the first nine months of 2017, compared to last year, with the growth of the trade surplus.

Long in Brazil? Then Cheer Against it in FIFA’s World Cup

Wait.. What does football has to do with economy or stock investment? And even worse, how come a negative result for the country can be positive for it’s economy?

NeymarFair questions. And to answer them, we have  to remind that this year is also election year in Brazil and that football is not just one sport here. It is THE sport everyone follows. It’s almost embarrassing for us that we pretty much have no other sport. But the reality is it can change the country’s mood.

The other thing to be aware is that no matter what happens within the field, one thing is a given for this world cup: There will be riots! Maybe only pacific ones maybe not. In fact, PCC, a criminal organization is allegedly arranging less-than-pacific protests with black block. Now, the population in general is against any violent protest and would support the government and police in containing them. The part that can really change the election scenario is actually the pacific protests. And the reason is that those are supported by the majority of the population and tend to be very negative on the government currently on power.

Still not making any sense? We’ll get there… Bare with me.

So, what could change the population’s humor against the world cup? A Brazilian victory. If Brazil wins the hexa, protests will lose its strength. Make no mistake: most people in Brazil say they are against the world cup happening here but they will definitely get involved once the ball starts to roll.

So, if Brazil wins, it’s very likely that the government will get a little bit of a break and therefore Dilma becomes stronger for reelection in October/ November.

And that is why you should cheer against Neymar and team, if you are long. It’s been very clear lately the inverse relation between Dilma’s performance in the election pools and the stock market. Why? Because their government sucks (sorry for the technical term) for the private sector. PT, the labor party Dilma belongs to, has strong social programs and a good record of getting people out of poverty (especially in Lula’s first 4 years), which is great of course! But they don’t do the necessary investments and reforms the country desperately needs.

So.. what’s left? Vamos España! 🙂

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