Fonte: Forbes

Autor: Kenneth Rapoza 

Brazil is on a tear lately. Its Bovespa Index is the beating all of the emerging markets. It’s besting China. It’s besting Trump’s super-duper stock market here at home. It’s all thanks to a once unpopular pension reform bill, which saw tens of rally late last month in support of the new president’s push to overhaul Brazil’s teetering public pension system.

Over the last month, the iShares MSCI Brazil (EWZ) has gained 7.5% versus just 2.24% for the benchmark MSCI Emerging Markets Index. If you had put $10,000 in that Brazil ETF last Fourth of July weekend you’d have $3,700 extra for summer play money as your 12-month gain.

This week, BlackRock recommended investors go overweight Brazil, saying it was better than anything in Asia due to the China effects from the trade war.

Brazil’s economy is still sluggish, though. Economic data is not entirely impressive. Banks have been downgrading economic growth all year. Investors are overlooking the fundamentals and betting on smooth sailing from here on out for pension reform.

President Jair Bolsonaro got off to a slow start on the pension overhaul. His top economic minister, Paulo Guedes, a Wall Street fave from Brazil’s BTG Pactual investment bank, finally got through to Congress. Pension reform is what has markets feeling downright celebratory on Brazil.

Next Moves for Pension Plan

Brazil’s new pension reform law has passed through committee and is on its way to Congress. It’s not a done deal yet, but it is getting closer.

According to Brazil political risk firm Arko Advice, Bolsonaro may have the votes (around 300) to pass this thing as-is in a single round of voting. In the best-case scenario, that would mean the Lower House of Brazil’s Congress has agreed to the Committee’s version of pension reform, and it then goes to the Senate, likely with minimal changes, for a final bill to be sent to Bolsonaro to sign into law.

Arko thinks Bolsonaro’s political coalition has at least 320 votes in favor.

Brazil’s left-of-center opposition, led by the Workers’ Party, was clobbered in the last election. While it is still a large congressional party, their alliance of harder left wing parties is too small to block passage of the bill.

Should the bill fail to pass in the first round, then a second round would take until the end of the month, or even with a slim chance of occurring this week.

Funds dedicated to Brazil saw their sixth straight outflow in early July thanks to a combination of investors cashing in on gains and fresh fears that the political scandals that have rocked the country for the past two years were given some fresh fuel to its fire following revelations of messages between prosecutors and judges that made it look like the Supreme Court would overturn the jail sentence of ex-president Luiz Inacio Lula da Silva.

Lula is serving a 12 year prison term for his role in the massive Petrobras Car Wash scandal.

Revelations of those private conversations between key figures in the case against Lula were made by The Intercept, an American media company. Glenn Greenwald was the writer of the articles. Greenwald, who became famous as one of the reporters who helped Edward Snowden reveal U.S. domestic surveillance programs against Americans, has promised a slow drip of what he calls damning information against Car Wash prosecutors.

These headlines could also surprise to the downside and put the brakes on pension reform voting in a worse-case scenario.

Big investors still like Brazil, despite its nasty politics and lackluster growth story.

Compared to the rest of the emerging world, Bolsonaro’s Brazil is a bright spot. “We have turned negative on most emerging market equities because markets are pricing in too much Chinese stimulus,” says Tony DeSpirito, director of investments for BlackRock. “We see selected opportunities in Latin American markets,” he says, naming Brazil and Mexico.

Once pension reform is over with, investors should expect a “sell-the-news” moment. Wall Street will be moving on to other big ticket items on Bolsonaro’s fix-it list, including tax reform and maybe interest rate cuts, should the economy remain sluggish.

Fonte: Forbes