The Brazilian stock market has already corrected by 45% due to a weaker dollar and some reallocation of capital from the US, but this was not a fundamentals-based move specific to Brazil, but rather a phenomenon that favored several emerging markets. However, going forward, there is “very significant scope for lower interest rates” in the country, lowering the cost of capital and “equity valuations” that will benefit growth and capital market activity. Alexandre BetamioGlobal Co-Head of Investment Banking Bank of America (BofA).
Speaking at a panel event at the G4 education conference in São Paulo, the banker shared his vision of interest rates “coming down significantly next year” in a relatively healthy economy. As an emerging country, Brazil should be growing more, but at least its growth is not slowing down. And with tax incentives, people will probably spend a little more than they would otherwise.
“This will help some, but it will be temporary. Value can only be solved and unlocked in the face of structural problems. Elections create debate and an opportunity to listen and think about who wants to make the necessary changes. And it could be the current government or another government, but we are facing a debt-driven sovereign debt crisis.”
Bettamio said that with a debt of about 8 trillion to 9 trillion reais and a nominal deficit of about 9%, what is scary is not the debt-to-GDP ratio of about 80%, but the US’s 120% and Japan’s 230%.
“The problem isn’t the size itself. It’s not healthy, but the problem is the cost of maintaining it. If the national debt is growing 15% a year and the economy is growing 3%, you go bankrupt. You don’t have to do a lot of math to know that this bill won’t eventually be paid.”
The executive said that if the government signals any measures to address the main issue of this budget deficit, whatever it is, the market will quickly correct it and “pre-price, follow expectations rather than reality, and predict what will happen.” “Therefore, as a result of the debate[between presidential candidates]there could be a very interesting moment for Brazil next year.”
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