Brazilian equities set record of optimism over social security reform

The Brazilian benchmark, Ibovespa, achieved a new historical record thanks to the expectations that Congress approves a reform of the country's social security system.

The indicator rose to 100,000 for the first time Monday, bringing to earnings this year total 14%.

"It's hard to find another story as positive as Brazil's in the region," said Emy Shayo, director of securities strategy for Latin America at JPMorgan Chase. The bank sees a "virtuous cycle" in the middle of a tighter tax regime and a more flexible monetary policy, a combination that "attracts external capital and helps companies recover a large part of their profit losses," added Shayo.

Much of the investor optimism towards Brazil is due to the president's favorable market program Jair Bolsonarowhich includes the privatization of inefficient businesses, tax reforms and other measures to consolidate the largest economy in Latin America. Since the Congress resumed in February, investors are closely watching how the new president will gain Parliament's support for the controversial pension bill. Previous governments have not endorsed the proposal, which is considered essential to reduce the country's budget deficit and ensure the sustainability of the economic recovery.

"Pension law to be approved by the Lower House in June", said David Beker, Latin American fixed income strategist at Bank of America Merrill Lynch, Beker estimates that the Ibovespa will end in 2019 at 120,000 thanks to growing profits and expectations of a better tax situation.

Despite the historical record, foreign investors are skeptical about the rebound of the shares, motivated mainly by local elements. The Brazilian stock market lost 597 million reais (US $ 157 million) in foreign investment this year until March 14, according to stock market data collected by Bloomberg, last year, has seen the largest outflow since the global financial crisis.