Brazil\u2019s financial markets are beginning to adjust expectations for the 2026 presidential election, as investors try to gauge the political event’s impact on stocks, interest rates, and the exchange rate. Also on their radar are the threat of new U.S. trade tariffs under President Donald Trump and the possibility of a bubble forming in artificial intelligence investments. <\/p>\n
\u201cThe presidential election in Brazil will affect asset prices, and there\u2019s already a shift in expectations about who would be the most competitive candidate against Lula. But Trump\u2019s renewed tariff threats toward Latin America are also in the air. And globally, markets are taking on a lot of risk, people are even talking about a new bubble forming,\u201d said Erm\u00ednio Lucci, CEO of BGC Liquidez. <\/p>\n
He spoke at the panel \u201cPerspectives and Challenges for Brazil\u2019s Macroeconomy,\u201d during another edition of Caminhos do Brasil (Brazil\u2019s Pathways), a debate series promoted by Valor Econ\u00f4mico, O Globo, and CBN radio, held October 14 in S\u00e3o Paulo as part of the CNC Global Voices event. <\/p>\n
Sponsored by the Commerce System\u2014via the National Confederation of Commerce (CNC), Sesc, Senac, and their federations\u2014the event was moderated by journalists Alex Ribeiro (Valor) and Luciana Rodrigues (O Globo). <\/p>\n
In Brazil, investors largely agree that the next administration must tackle the country\u2019s fiscal challenges. A win by the opposition is seen as more likely to bring spending cuts, potentially opening the door for faster reductions in the Selic base interest rate, said Oct\u00e1vio Magalh\u00e3es, chief investment officer at Guepardo Investimentos. <\/p>\n
Jo\u00e3o Braga, founder of Encore Capital, said the current administration\u2019s focus on boosting revenue rather than cutting spending \u201ccreates political fatigue and limits economic policy effectiveness.\u201d Still, he remains optimistic for those with a long-term view. \u201cMarkets tend to overreact in the short term. But for long-term investors, this might be the best scenario imaginable.\u201d <\/p>\n
Mr. Braga pointed out that corporate earnings remain strong and economic growth has consistently surprised\u2014due to both good and bad reasons\u2014since 2019. Interest rates in Brazil are also expected to fall soon, following the trend already underway in the U.S. <\/p>\n
He noted that for the past 17 years, U.S. investments were the default due to low interest rates, Mr. Trump\u2019s earlier corporate tax cuts, and the technological boom, particularly in AI. Now, however, Mr. Trump\u2019s second term is adding uncertainty with trade tariffs, and China is advancing quickly in AI development. That has prompted investors to diversify, seeking new destinations for capital, including Brazil. <\/p>\n
Mr. Braga used an analogy to explain the global capital flow: \u201cIt\u2019s what I call the Olympic pool theory. If you remove five buckets of water from it, the pool [the U.S. stock market] still looks the same. But if you pour them into a bathtub, Brazil, it makes a big splash. That\u2019s already happened a bit this year.\u201d <\/p>\n
For the business environment in Brazil to improve further, Mr. Lucci of BGC said the country needs to continue advancing reforms. He argued that the 2023 tax reform, whose effects begin in 2026, helps simplify processes, but further steps are needed. <\/p>\n
\u201cIt starts with administrative reform. The Brazilian state is large and expensive. And many advances from the labor reform are being rolled back. Hiring under CLT [Brazil\u2019s labor law framework] remains costly, and this discussion must resume,\u201d Mr. Lucci said. <\/p>\n
Investors have also begun discussing the risk of a speculative bubble in AI. <\/p>\n
\u201cBut with AI, not even the CEOs and founders of these companies know if their assets are overvalued or undervalued, what their actual scale is, or where the companies will go,\u201d said Mr. Magalh\u00e3es of Guepardo. \u201cCalling it a bubble is risky, because these companies may deliver the results the market expects and continue growing. I can\u2019t evaluate that, which is why I don\u2019t invest in AI. I don\u2019t know if it\u2019s a bubble or not.\u201d <\/p>\n
Mr. Lucci added that while the risk of an AI bubble is still uncertain, geopolitical risk has clearly increased in recent years. \u201cThere\u2019s the unpredictability of Trump\u2019s actions. His way of operating creates uncertainty, whether it\u2019s imposing tariffs or threatening to intervene in the Federal Reserve. That kind of geopolitical risk is very hard to price.\u201d <\/p>\n
This global environment of uncertainty could, paradoxically, increase Brazil\u2019s resilience due to the country\u2019s more closed economy, Mr. Lucci said. But Mr. Magalh\u00e3es cautioned that Brazil remains heavily dependent on commodity exports to China. <\/p>\n
\u201cOur problem is China. If China stops buying from us, Brazil and its commodities will suffer. The U.S. wouldn\u2019t hurt us as much,\u201d said Mr. Magalh\u00e3es. <\/p>\n
Jos\u00e9 Roberto Tadros, president of the CNC-Sesc-Senac System, highlighted the importance of bringing together financial market experts at the Caminhos do Brasil debate within CNC Global Voices. <\/p>\n
\u201cWe reinforce the importance of discussing topics such as interest rates, exchange rate, reforms, and the business environment in depth,\u201d he said. \u201cThe CNC-Sesc-Senac System believes that Brazil\u2019s sustainable development depends on a stable and predictable economic environment that can attract investment and generate jobs.\u201d <\/p>\n","protected":false},"excerpt":{"rendered":"Brazil\u2019s financial markets are beginning to adjust expectations for the 2026 presidential election, as investors try to gauge…\n","protected":false},"author":3,"featured_media":323785,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[13],"tags":[64,135,67,132,68],"class_list":{"0":"post-323784","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-markets","8":"tag-business","9":"tag-markets","10":"tag-united-states","11":"tag-unitedstates","12":"tag-us"},"share_on_mastodon":{"url":"https:\/\/pubeurope.com\/@us\/115417771204185490","error":""},"_links":{"self":[{"href":"https:\/\/www.europesays.com\/us\/wp-json\/wp\/v2\/posts\/323784","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.europesays.com\/us\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.europesays.com\/us\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/us\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/us\/wp-json\/wp\/v2\/comments?post=323784"}],"version-history":[{"count":0,"href":"https:\/\/www.europesays.com\/us\/wp-json\/wp\/v2\/posts\/323784\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/us\/wp-json\/wp\/v2\/media\/323785"}],"wp:attachment":[{"href":"https:\/\/www.europesays.com\/us\/wp-json\/wp\/v2\/media?parent=323784"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.europesays.com\/us\/wp-json\/wp\/v2\/categories?post=323784"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.europesays.com\/us\/wp-json\/wp\/v2\/tags?post=323784"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}