Brazil’s Punted Performance Patterns

Brazilian share and debt results took the rear of major market indices through mid-year as the President’s approval rating also halved on political and economic disturbance and the billionaire Batista empire headed for a record default, again sending corporate above sovereign spreads as issuance and liquidity froze in the recently-prized asset class. The MSCI and EMBI entries were off 20 percent and 10 percent respectively, as the currency dipped to 2.2 to the dollar despite numerous interventions and expected benchmark rate hikes which could bring a double-digit level by year-end. Investors dumped state and private banks exposed to Batista’s EBX Group, with the development lender BNDES the most at risk with a sum equal to 5 percent of regulatory capital. Another billionaire’s aggressive investment bank BTG is also on the hook for emergency funding injected the past several months, and Banco do Brazil which just listed its insurance affiliate has been the top underwriter of company external dollar bonds. Inflation was close to 7 percent and the manufacturing PMI was flat in June with consensus GDP growth at 2-2.5 percent this year. The primary budget surplus is officially put at 2 percent of GDP and Finance Minister Mantega, who has been rumored for dismissal, has reiterated that additional social and infrastructure spending to quell discontent will be met with revenue rises, including a proposed “wealth tax” on high-income earners. BNDES’ dividend policy has been altered to facilitate fiscal goals as the President underscored “responsibility” as a centerpiece of reform initiatives, including a referendum on legislative reorganization, to be debated in advance of 2014 elections where her voter intent is now 30 percent, down from 55 percent. She still polls ahead of likely rivals but favorability decline was far steeper than for predecessor Lula, who retains an emotional connection to the Workers’ Party rank and file. Violent street protests across the country during an important pre-World Cup competition highlighted anger both at sports versus public services priorities and Dilma’s technocratic orientation, and she cancelled an overseas trip to “better hear” popular views.

Turkey’s Prime Minister Erdogan however condemned park opponents spawning a national movement as troublemakers and tools of a “speculative lobby” as the capital markets board launched a sweeping investigation into the post-demonstration selloff saddling the stock exchange with a 10 percent first half loss. The crackdown followed previous controversy over a new law punishing negative financial commentary as an offense which officials had described as overblown but may now be put to the test. The central bank for its part has been probing new intervention limits to halt the lira-dollar declines at 2 with $5 billion in monthly sales. Tourism that would otherwise benefit from the cheapening along with diversion from Greece and Cyprus has been spooked by the confrontations both in major cities and beach resorts as the decade old Islamic-led conservative civil and monetary model is set adrift.