Brazil markets tread water, eyes on local politics
www.forbes.com Reuters, 01.09.03, 9:50 AM ET
By Todd Benson SAO PAULO, Brazil, Jan 9 (Reuters) - Brazil's financial markets traded steady to lower early on Thursday, with investors waiting to see if the new government can strike a deal in Congress with the country's largest political party.
After spending much of the morning seesawing in and out of the red, the Brazilian real
Stocks, meanwhile, headed higher as investors tiptoed back into the market after a two-day bout of profit-taking. In early afternoon trading, the Sao Paulo Stock Exchange's benchmark Bovespa <.BVSP> index was up 0.23 percent at 11,812 points, buoyed by rising blue chips.
"The market opened eyeing the news of the PT's difficulties in bringing (political) allies on board," said Alexandre Vasarhelyi, head of foreign exchange at ING Bank in Sao Paulo, using the Portuguese acronym for President Luiz Inacio Lula da Silva's left-wing Workers' Party.
"It's not all that worrisome, but the market wants to know if they (the PT) are going to get the deal they need."
Still short of a congressional majority needed to push through key economic reforms, the PT is struggling to reach an agreement with the deeply divided Brazilian Democratic Party (PMDB) to divvy up the leadership of the lower house and the Senate.
Though the parties have a history of mutual distrust, party officials on both sides have said they expect to come to an agreement soon, which could bode well for the new government's ambitious agenda of reforms in Congress.
Since winning October's election and being sworn in last week, Lula has pleased investors by promising not to abandon prudent economic policies in his quest to improve the lot of ordinary Brazilians, 54 million of whom live in poverty.
The former union boss has also pledged to give the Central Bank autonomy to set monetary policy and overhaul the country's bloated public pension system, which saps billions of dollars from government coffers every year.
Encouraged by the market-friendly signals coming from the new government, Brazil's stocks, bonds and currency have all rallied so far this year, but investors caution that concrete measures are needed if the honeymoon is to last.
"The market seems to have priced in all the good news coming from the government so far," said Clive Botelho, treasury director at Banco Santos in Sao Paulo. "But from here on out, people want to see the discourse put into practice, and a deal with the PMDB would be a step in that direction."
In stock action, blue chips like state oil giant Petroleo Brasileiro (Petrobras) <PETR4.SA> (nyse: PBR - news - people) and telephone company Tele Norte Leste Participacoes (Telemar) <TNLP4.SA> (nyse: PBR - news - people) helped keep the market on the upside.
Petrobras shares, which have rallied of late with rising oil prices, were up 1.04 percent at 48.70 reais, while Telemar stock inched up 0.36 percent to 27.80 reais.
Telemar shares are among the most liquid at the exchange, accounting for about 13 percent of the Bovespa index.
On the downside, long-distance operator Embratel Participacoes <EBTP4.SA> continued to suffer as investors locked in gains that saw the company's share price double over the last two months. Embratel shares slipped 1.52 percent to 4.54 percent.