Reuters, 04.03.03, 10:13 AM ET
By Todd Benson
SAO PAULO, Brazil, April 3 (Reuters) - Brazil's stock market trotted higher early on Thursday, riding a fresh wave of optimism after Congress paved the way for Central Bank autonomy.
The Brazilian currency, however, drifted sideways to lower in thin trade, giving up early gains as investors awaited a Central Bank debt auction scheduled for later in the day. The real
<a href=www.falkland-malvinas.com>Mercosur Thursday, 03 April
After three months in office, leftist President Luiz Inacio Lula da Silva enjoys widespread popularity, according to a opinion poll released Wednesday.
The survey by the respected polling company Ibope found that 75 percent of respondents approve of Silva's government, while 13 percent disapprove.
Silva, a former union boss, was elected last October with 61 percent of the vote in a runoff against former Health minister Jose Serra. He took office Jan. 1.
Silva's personal rating was even higher. Fully 80 percent of people questioned said they had confidence in the president, while 16 percent said they didn't.
Still, few expect a quick turnaround for the economy, which grew just 1.5 percent last year. The survey found that 61 percent of Brazilians think inflation will rise, while 56 percent expect unemployment also will grow.
Ibope, which conducted the survey for the National Confederation of Industries, interviewed 2,000 people in 145 cities across the country and gave the margin of error as 2.2 percentage points.
<a href=news.ft.com>Financial Times By Richard Lapper, Latin America Editor, in São Paulo Published: April 3 2003 5:00 | Last Updated: April 3 2003 5:00
Brazilian financial markets surged higher early yesterday amid optimism that the government would win congressional support for plans to give greater autonomy to the central bank.
The legislation - which was to be presented to the legislature late yesterday - is the first of a raft of radical reforms designed to reinforce the government's commitment to fight inflation and increase economic productivity.
Reforms of Brazil's inefficient tax system and costly public sector pension regime will also be presented to congress later this month.
The Real gained 1 per cent in early dealing and was trading at about R$3.27 to the dollar by midday in São Paulo. Stocks rose by nearly 3 per cent and Brazil's international bonds consolidated recent strong advances.
Late on Tuesday the average yield spread over US Treasuries - the most widely used measure of political risk - fell below 1,000 basis points for the first time since May last year. Yesterday saw further falls, with average yields down by about 15 basis points to 9.74 per cent by mid-morning.
The government was expecting to win a big congressional majority in favour of a constitutional change that would pave the way for legislation altering the statutes of the central bank.
The proposal has been controversial both within the governing Workers' party (PT) and among its smaller leftwing allies. But party leaders have apparently persuaded opponents to stick with the government line.
Yesterday Luciana Genro, one of the more outspoken of about 30 deputies on the PT's left wing, said she and her colleagues would vote in favour of the constitutional change. Ninety two of the 513 deputies in the lower house are members of the PT. The bank and other reform proposals are supported by centre-left, centrist and rightwing opposition parties.
Luiz Inácio Lula da Silva, Brazilian president, has opted to bring forward reform proposals because of uncertainty over the war in Iraq. The decision means that an extensive process of consultation with trade unions, business leaders and other groups has been curtailed.
Even so, congressional debates are expected to take many months and analysts do not expect final approval of the laws until next year at the earliest.
Graham Stock, head of sovereign strategy at JP Morgan in New York, said that investors had been encouraged by the way the government had dealt with the left but was not expecting rapid approval of the reforms. "Euphoria [in the markets] is not excessive," he said.
Thursday April 3, 11:05 PM (This article was originally published Wednesday) By Charles Roth Of DOW JONES NEWSWIRES
NEW YORK (Dow Jones)--Notwithstanding the way the war in Iraq has been whipsawing global financial markets recently, emerging market assets appear well positioned to ultimately ride the volatility higher in the months ahead.
Emerging market fund managers and strategists say cheap stocks and high-yielding bonds, coupled with solid economic growth prospects, all bolster the case for the asset class.
"If we get some form of (Iraq) resolution over the next couple months, then we will see a huge rally in all markets," said Allan Conway, head of global emerging markets fixed-income and equities at WestAM in London.
After a great run last year and so far this year, emerging market bonds still remain attractive. But the asset class's equities look set to offer the wildest ride, with the war and its aftermath driving the swings.
Once U.S. forces take Baghdad, from which they are now within 30 miles, according to the Pentagon, stocks are expected to soar.
"Then the question will be how sustainable is the rally? For that we'll have to look at the global economy," Conway said, adding that indicators point to weakness in the U.S., the European Union and Japan.
While emerging market stocks aren't likely to fly as high as developed market equities, they won't give as much back, he said, explaining that "valuations are extremely attractive" compared to the fair value or still-rich levels at which much of Wall Street still trades.
Tim Love, emerging market strategist at Deutsche Bank in London, agreed. "We're very bullish on a relative basis as they (emerging market stocks) enter their fifth year outperforming" the Morgan Stanley Capital International's All Country World Index, he said.
In addition to lower volatility, emerging market stocks "still have extreme support from valuations...indicative of the positive upside yet to go in the asset class," he added.
Brad Durham, a managing director at Massachusetts-based Emergingportfolio.com Fund Research, which tracks fund flows, pointed to data indicating that the forecast average emerging markets 2003 price-to-earnings ratio is 8.3. That's markedly cheaper than the double digit ratios at which most of Wall Street's stocks trade.
Even if U.S. economic growth accelerates in the second half, as anticipated, faster growth in emerging markets should provide a more solid foundation for appreciation in their asset prices.
WestAm's Conway, whose fund manages $750 million in fixed-income and equity investments across emerging markets, said most emerging market economies will expand between 3.5% to 6% this year. The World Bank expects developing countries to grow 4% in 2003, up from 3.1% in 2002. The range clearly outstrips the consensus 2.6% U.S. growth forecast, as well as the World Bank's 2.3% global growth projection for 2003.
A Wall Street-based trader of American Depositary Receipts from Asia said a number of Asian stocks are poised to rise on the back of several factors: robust growth in places such as China, India and Thailand; budget surpluses; improved corporate governance; hefty international reserves; falling dollar-denominated debt levels; and a willingness of Asian monetary and fiscal authorities to employ counter-cyclical measures to ramp up economic growth. At the same time, inflationary pressures remain benign.
One possible damper on growth, particularly in Hong Kong, Vietnam, Singapore and ultimately perhaps even China may be the recent outbreak of severe acute respiratory syndrome, or SARS, a highly contagious, little understood and potentially fatal illness.
Overall, Love said Deutsche Bank finds the Asia story compelling, and recommends adding weight in Asian equities.
WestAm's Conway, though, is less bullish on Asia, with an overweight only in Thailand, which is so far this year the only Asian equity market to post a gain in dollar terms - rising 5.5% on the MSCI index.
Outside Asia, Conway's overweight equity positions include Brazil, Chile and Russia.
Brazil has indeed turned into a popular play thanks to dirt-cheap valuations, its large market and the view that leftist President Luiz Inacio Lula da Silva, who took the helm at the beginning of the year, is sticking to orthodox economic policies.
"There's lots of positive news out of Brazil," said Tim Ramsey, an emerging market strategist at Bear Stearns in New York. "It should outperform in a resolution of the war in line with U.S. objectives."
Ramsey is recommending the South American giant's industrial exporters and sectors in which the government has a "lighter regulatory touch" such as the wireless telecommunications sector.
Views are more mixed, though, on Mexico and Russia, two other emerging market giants.
Conway is underweight Mexico, while Love likes the outlook for the country.
Love points out that despite its recent strengthening, Mexico's currency is still undervalued, which should help its exporters and producers for the domestic market. And market capitalization is less than 20% of gross domestic product, compared to 70% at its peak, he said.
Others, such as Bear Stearns' Ramsey, note that while Mexican stocks may be cheap historically, they don't have many drivers for growth, with structural reform initiatives stalled by divided legislative and executive branches, and likely continued political infighting even after July mid-term elections.
And without faster growth in the U.S., which absorbs more than 80% of Mexican exports, the country's stocks, which trade at a 2003 forward-looking P/E of 11.2, or more than double Brazil's forecast P/E this year, may not see as much upside as other emerging market stocks.
Russian equities, despite giant gains last year, are still attractively valued. But like the country's bonds, performance hinges predominantly on the price of oil. Love is neutral Russian stocks, while Bear Stearns' Ramsey is "very wary" in a "climate in which oil prices are falling."
As U.S. forces advance on Baghdad and oil fields in Iraq are increasingly secured, oil prices have tumbled to nearly $28 a barrel for May delivery from a high of almost $40 a barrel in the prelude to the war.
Falling oil prices could also spell trouble for sovereign credits such as Venezuela, Colombia, Ecuador and Nigeria, and don't much help Mexico, which sources about a third of its public income from oil and related taxes.
But lower energy costs, in addition to facilitating growth in the U.S. and Europe, will also help oil importers such as Brazil, Chile, Turkey and Northeast Asia. For these countries, cheaper oil may ease inflationary pressures, and could even prompt monetary authorities to lower interest rates, which would make corporate borrowing and debt servicing easier. That, in turn, should help stocks.
If it appears that emerging market stocks are on the whole poised to gain near term, the asset class's bonds will likely still garner plenty of investor attention.
After gaining 14% last year, and 8.4% so far this year, the spread on the J.P. Morgan EMBI Plus, at about 650 basis points over U.S. Treasurys, may not contract much more near term. But, WestAm's Conway said, with yields running around 10% compared to U.S. Treasurys, "they're pretty attractive."
And spread contraction is still probable in Brazil, Ecuador, Nigeria and Argentina, he added.
-By Charles Roth, Dow Jones Newswires; 201 938 2226; charles.roth@dowjones.com
<a href=reuters.com>Reuters Wed April 2, 2003 06:33 PM ET By Axel Bugge
BRASILIA, Brazil (Reuters) - Almost 100 days into his administration, Brazilian President Luiz Inacio Lula da Silva rode tall on Wednesday as investors poured money into the economy and voters strongly endorsed him in a poll.
Brazil's first elected working class president has faced criticisms for being slow to implement his flagship social policy "Zero Hunger" and to mobilize Congress for key reforms, but as he entered his fourth month his popularity was high.
Lula scored a major victory on the legislative front as well after Congress approved a bill late Wednesday that could pave the way for Central Bank independence in a vote bolstering the center-left government's chance to pass other key reforms.
"The positive evaluation is large," said Armando Monteiro Neto, head of the National Industry Confederation, which commissioned the poll. "There is a perception that the government can act to fight the problems."
The survey, carried out by the Ibope polling agency, showed that 64 percent of respondents would vote for Lula if elections were held today, up from 61 percent of the electorate that voted for the former metal worker in his October landslide. He took office on Jan. 1.
ECONOMIC OPTIMISM
The support showed that little progress in bringing about the ambitious changes he promised in his campaign, like generating millions of jobs and delivering three meals every day to every Brazilian, has not dented his support.
"The people will have more patience with him (Lula) than other leaders," said Carlos Lopes, a political analyst with the Santa Fe consulting firm in Brasilia.
While Wednesday's poll showed Brazilians consider economic challenges such as unemployment and the fight on poverty as their top concerns, Lula was rewarded with further gains in financial markets due to his handling of the economy.
Stocks were up 2.4 percent and the local currency rose 1.6 percent to its highest level since mid-January as investors bet on the improving prospects of Brazil's economy. In another good sign, spreads on Brazil's bonds to U.S. Treasuries were at their lowest levels since May last year.
"I think the economic scenario is very positive," said Maria Lucia Camargo, chief economist at Banco Sudameris.
Economic prospects could be boosted by Wednesday's Congress vote as well, as it improves the prospects for reforms of the debt-ridden public pension and cumbersome tax systems that are key to underpinning long-term growth in Brazil.
Optimism was underscored in recent days by data showing a surging trade surplus, reducing reliance on foreign capital at a time of uncertainties due to the Iraq war, and cost cutting have all ensured Brazil met strict IMF-agreed fiscal targets.
Inflation expectations also appear to be subsiding after two interest rate hikes. These are no small feats for a government that many feared would mismanage the economy.