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Financial News: BRAZIL: Stocks Fall To Lowest Level In Two

BRAZIL: Stocks Fall To Lowest Level In Two Months Amid Pension Reform Fears

11/07/2017 - 17:43:00 (RTTNews)

(RTTNews) - Brazilian benchmark stock market index Ibovespa fell 2.55% to 72,414.88 points Tuesday and closed at the lowest level in almost two months after the government admitted that it might face obstacles to garner support for the pension system reform in Congress.

The pension system reform is one of the pillars of Brazil's fiscal adjustment, and a Congressional veto to the proposal would probably unlock a new downgrade to the sovereign rating since public expenditure would rise more rapidly than expected.

The alternative to the pension system reform would be higher taxes, another controversial measure that has a low probability of passing Congress a year before a presidential election in Brazil.

"Markets already thought that the pension system reform would not pass this year, but yesterday [president Michel] Temer spoke more formally about that," said Platinum Investimentos asset manager Christian Laubenheimer.

"Investment funds and the main market players were all exposed to stocks. Foreign investors are hitting the brakes or even leaving. When stress starts, it turns into a snowball," he added.

Adeodato Volpi Netto, the chief strategist at Eleven Financial Research, also said that the lack of support to the pension system reform is not a surprise and that the market is behaving "irrationally," but he believes that investors could profit from the volatility.

The same factors that weighed on stocks boosted the locally traded U.S. dollar, which rose 0.52% to R$ 3.2770.

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