{"id":95003,"date":"2025-07-21T11:55:31","date_gmt":"2025-07-21T14:55:31","guid":{"rendered":"https:\/\/murray.adv.br\/?p=95003"},"modified":"2025-07-21T11:55:31","modified_gmt":"2025-07-21T14:55:31","slug":"barclays-sees-fertile-ground-for-market-volatility-ahead-of-2026-election","status":"publish","type":"post","link":"https:\/\/murray.adv.br\/en\/barclays-sees-fertile-ground-for-market-volatility-ahead-of-2026-election\/","title":{"rendered":"Barclays sees \u201cfertile ground\u201d for market volatility ahead of 2026 election"},"content":{"rendered":"
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Chief Brazil economist Roberto Secemski says foreigners are growing more cautious while local investors stay optimistic<\/strong><\/em><\/h6>\n<\/div>\n<\/div>\n
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07\/21\/2025\u00a0<\/p>\n<\/div>\n<\/div>\n<\/div>\n<\/div>\n<\/section>\n

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Diverging positions between local and foreign investors in Brazilian assets\u2014driven by differing assessments of the 2026 electoral landscape\u2014may translate into heightened volatility in domestic market dynamics as the election approaches. In this environment, any shift in expectations\u2014even in structurally unchanged areas such as fiscal policy\u2014could trigger sharp repricing in the markets. This is the view of Barclays\u2019 chief Brazil economist, Roberto Secemski, following a recent round of meetings with clients in Brazil and abroad.<\/p>\n<\/div>\n

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\u201cAt the beginning of the year, locals were very pessimistic, while foreigners were less so\u2014which tends to be their usual stance. Now, I see the opposite: locals are more constructive, and foreigners more skeptical,\u201d said Secemski, who attributes this shift mainly to expectations surrounding a possible political regime change in next year\u2019s election\u2014expectations he found to be \u201cmuch stronger among local investors than foreign ones.\u201d<\/p>\n<\/div>\n

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In an interview with Valor, Mr. Secemski noted that this could lead to increased instability in domestic markets due to electoral news. \u201cThis discrepancy in analysis will be confronted with reality,\u201d he said. \u201cIf we experience a shift in scenarios that are potentially binary, it could lead to a discontinuity in asset performance… Understanding investor positioning better, it seems there are conditions in place that could result in greater volatility. It\u2019s a fertile ground for that.\u201d<\/p>\n<\/div>\n

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According to Mr. Secemski, this scenario helps explain the recent instability in Brazilian assets. \u201cTrump is an example that triggered this reassessment of political probabilities,\u201d he said, referring to U.S. President Donald Trump\u2019s announcement of 50% tariffs on Brazilian imports starting August 1. \u201cThis raises questions among investors\u2014rightly so\u2014given Brazil\u2019s still-fragile fiscal situation.\u201d<\/p>\n<\/div>\n

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During his discussions with clients, Mr. Secemski observed that local investors tended to downplay the importance of events that, in other circumstances, might have had a stronger impact on asset prices. He noted that Brazil\u2019s fiscal outlook remains largely unchanged from earlier in the year, even if some adjustments have extended the life of the fiscal framework for this year\u2014and possibly the next.<\/p>\n<\/div>\n

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\u201cBut we haven\u2019t seen changes that would lead the fiscal issue toward debt stabilization. Still, the market narrative has changed significantly\u2014particularly among locals, who have shrugged off some fiscal headlines that foreigners have not been so quick to dismiss,\u201d said Mr. Secemski.<\/p>\n<\/div>\n

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With the prospect of a regime change, local investors have effectively priced in a \u201cnew fiscal arrangement,\u201d he said. \u201cThis has reduced anxiety, especially compared to what we saw in November and December of last year. But foreign investors assign a much lower probability to this scenario.\u201d<\/p>\n<\/div>\n

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Foreign investors, he added, still carry a \u201cresidual memory of the market turmoil\u201d at the end of last year. \u201cThat left many investors with zero exposure. So there\u2019s some hesitation to come back,\u201d he said. Between November and December, a worsening in fiscal risk perception, combined with a more challenging global environment following Trump\u2019s U.S. victory, triggered a significant selloff in Brazilian assets. The dollar rose to R$6.30, and the yield curve priced in a Selic rate above 17%.<\/p>\n<\/div>\n

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\u201cThere\u2019s also the impression [among foreigners] that the electoral process is still far off, with a lot of uncertainty around who the candidates will actually be and what conditions they\u2019ll be running under,\u201d the economist added.<\/p>\n<\/div>\n

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Mr. Secemski also noted a changed global environment. Six months ago, with Mr. Trump just beginning his term, the outlook was for a strong dollar globally. \u201cToday, that story has flipped 180 degrees. The expectation is for a weaker dollar, which supports emerging markets. We must consider that, but in Brazil\u2019s idiosyncratic component, we don\u2019t see significant changes. For a fiscal outlook that\u2019s still the same, market conditions were much more stressed at the end of 2024 than they are today,\u201d he emphasized.<\/p>\n<\/div>\n

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The differences between local and foreign investor views also help explain current positions in domestic assets, Mr. Secemski said. \u201cMost local clients are in fixed-income positions [betting on interest rate cuts] and long the real \\[betting on appreciation of the Brazilian currency], although not at full capacity. Abroad, we also see investors long the real\u2014a fairly universal move given the weak dollar and high carry\u2014but not with the same exposure in interest rates,\u201d he said.<\/p>\n<\/div>\n

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That positioning is somewhat unusual, as foreign investors typically show a greater appetite for rate positions, especially at longer tenors. The focus on FX, however, reflects some reluctance among foreigners to take on greater exposure to domestic financial assets amid lingering political uncertainty.<\/p>\n<\/div>\n

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\u201cI think the rates component is more linked to the need for clearer evidence of economic deceleration, which isn\u2019t yet visible\u2014especially in labor market data,\u201d Mr. Secemski said. \u201cThe improvement in current inflation is mostly in tradable goods and food\u2014largely due to the stronger real. There\u2019s no conclusive sign of a consistent trajectory toward the inflation target, which calls for caution on rate bets, while FX conditions are more favorable externally,\u201d he noted, citing this year\u2019s more than 10% drop in the DXY index, which tracks the dollar against a basket of major currencies.<\/p>\n<\/div>\n

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As Brazil gets closer to the 2026 presidential election and different probabilities are assigned to electoral scenarios, investor pricing and positioning may shift, Mr. Secemski said. \u201cThese are very dynamic events. Moreover, the external environment remains volatile and uncertain. Any change in the perceived likelihood of a political regime shift could trigger shocks,\u201d he said.<\/p>\n

*By\u00a0Ana\u00efs Fernandes\u00a0and\u00a0Victor Rezende, Valor\u00a0\u2014 S\u00e3o Paulo<\/p>\n

Source: Valor International<\/p>\n

https:\/\/valorinternational.globo.com\/<\/p>\n<\/div>\n<\/div>\n<\/div>\n<\/div>\n<\/article>\n<\/div>\n","protected":false},"excerpt":{"rendered":"

Chief Brazil economist Roberto Secemski says foreigners are growing more cautious while local investors stay optimistic     07\/21\/2025\u00a0 Diverging positions between local and foreign investors in Brazilian assets\u2014driven by differing assessments of the 2026 electoral landscape\u2014may translate into heightened volatility in domestic market dynamics as the election approaches. 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