| SAO PAULO/NEW YORK
SAO PAULO/NEW YORK Nov 28 U.S. President-elect
Donald Trump's surprise victory could be a blessing in disguise
for Brazil as the country's agenda of fiscal reform and low
reliance on trade lure investors away from more vulnerable
Emerging markets have sold off since the Nov. 8 election on
concerns tax cuts and heavy infrastructure spending under a
Trump administration could force the Federal Reserve to hike
rates faster, potentially draining capital from high-yielding
assets in the developing world.
Many also fear a global trade shock if Trump makes good on
campaign pledges to review trade accords.
The Brazilian real tumbled 8 percent in the four days
following the vote, the second-worst performing currency in
Latin America behind the Mexican peso. But the real has since
stabilized to around 3.40 to the dollar as the initial shock
Investors say optimism over President Michel Temer's reform
agenda has lifted foreign direct investment in Brazil and left
it less exposed to market volatility in the wake of Trump's win.
Brazil's relatively closed economy, as well as its status as
a net seller of oil, make it an attractive alternative to
Mexico, which sells about 80 percent of its exports to the
United States. Concerns over Mexico's budget and economy have
also greyed the skies of the former market darling.
Many investors have been pivoting from Mexico to Brazil
since at least July, according to a Reuters survey of fund
managers, a trend that could accelerate throughout the coming
Steve Tananbaum, founder of GoldenTree Asset Management,
said he is "quite constructive" on Brazil and Argentina, where
right-leaning administrations have taken office in the past year
with agendas for business-friendly reforms.
"Their currencies are down precipitously yet we think there
are a lot of positive changes going on there," he said.
"Politically, they both have had changes in leadership that are
BRAZIL VS ARGENTINA
Even after the recent selloff, the Brazilian real and the
Argentine peso remain among the world's best performing assets
this year, supported by the policies of Brazil's Temer and
Argentina's Mauricio Macri.
Both took over from leftist predecessors who sought to
stimulate the economy with loose purse strings and
Their belt-tightening efforts have captivated investors,
though Brazil's roughly $2 trillion economy has yet to rebound
from its deepest recession in decades.
Years of protectionism have slashed both economies' reliance
on foreign trade, sheltering them from potential shocks.
Still, Argentina remains vulnerable to sudden capital
outflows, having just returned to international debt markets
after years of legal wrangling, investors said.
"If there is broader risk aversion in the markets that
prevents Argentina from entering and raising the funds that it
needs then Argentina becomes vulnerable," Siobhan Morden, head
of Latin American fixed-income strategy at Nomura Securities,
BRAZIL HAS "FAT TO BURN"
While bonds and currencies slumped, emerging market stocks
have been mixed since the election as prospects of
infrastructure spending boosted prices of industrial metals.
Brazil's benchmark Bovespa stock index fell 3.8
percent since the vote, in comparison to a 6.2 percent slide in
Mexican equities, while an index tracking shares of basic
product producers rose 13.7 percent.
Carlos Sequeira, head of research at Banco BTG Pactual SA,
said Brazilian stocks, which are up 45 percent in 2016, could
rise even further if Temer manages to gather lawmaker support
for measures to curb public spending and limit debt growth.
That would allow the central bank to continue its
rate-cutting cycle, he said, making riskier stocks more
attractive in relative terms.
The fact that real rates are higher in Brazil than in most
of its Latin American peers suggests there would be room for
rate cuts even if a weaker real fostered price pressures.
"There is fat to burn even if U.S. rates rise more than
expected," Sequeira said.
(Reporting by Bruno Federowski and Dion Rabouin; Editing by