EXCLUSIVE: What Could Brazil’s Election Result Mean for its State-Owned Companies?

With less then a month to go before the elections, the theme was a hot topic at the Bloomberg Línea Summit in São Paulo on Wednesday

Right to left, Karina Saade (BlackRock), Silvio Cascione (Eurasia) and Marcus Vinicius Gonçalves (Franklin Templeton)
September 14, 2022 | 12:21 PM
Reading time: 2 min.

Bloomberg Línea — Although the global scenario has dictated the course of the markets in recent months, the proximity of the presidential elections in Brazil will bring more uncertainty for investors, who wonder how their assets will be affected after the October 2 vote.

According to Silvio Cascione, director of Eurasia in Brazil, although volatility has been lower than in past elections, between now and the end of October there is plenty of room for some kind of a shakeup.

Participating in a Bloomberg Línea Summit panel, held Wednesday at the Rosewood hotel in São Paulo, Cascione said there is a risk of an incident similar to what happened in the United States - the invasion of the Capitol on January 6, 2021 - in Brazil.

PUBLICIDAD

“There shouldn’t be a national strike, but there is a broth that allows for that kind of event,” he said, referring to a possible truckers’ strike.

Eurasia estimates a 65% probability of victory for former president Luiz Inácio Lula da Silva, with President Jair Bolsonaro with a 35% chance of victory in a second-round runoff.

Cascione highlighted the possible effects on state-owned companies following the outcome of the election.

In the event of a second Bolsonaro term, he said the agenda promoted by Economy Minister Paulo Guedes would be likely be given continuation, that is, to put as many state-owned companies up for sale as possible.

PUBLICIDAD

“Petrobras (PETR3; PETR4) would be the flagship, focusing on its most profitable activity and maximizing the payment of dividends,” he said.

If Lula is elected, however, the strategy would be to leave the state-owned companies with a major role in inducing the country’s economic growth, he added, with perhaps space in the market for Eletrobras (ELET6), privatized this year.

“Petrobras would assume an important role, not only in the oil and gas sector, but [Lula’s] Workers Party (PT) has sent the message that it would also act in sectors in which Eletrobras is active, such as renewables,” he said.

This, he says, would mean fewer dividends and more focus on the long-term.

A scenario for investments

Regardless of the election results, the current scenario of global geopolitical tensions, high interest rates and inflation requires a greater diversification of the portfolio, according to Marcus Vinicius Gonçalves, CEO of Franklin Templeton in Brazil, who also participated in the Bloomberg Línea event.

“We will have to look at alternative forms of investment to the traditional market. Diversification tends to be even more important,” he said.

PUBLICIDAD

Karina Saade, head of BlackRock Brazil, called the audience’s attention to the high volatility, “which is here to stay,” driven by the fact that central banks have fewer and fewer tools available to reduce inflation without compromising economic growth.

“We will have bigger economic cycles, with more volatility, in which every time there is an increase in growth, it will be accompanied by inflation, and then the central banks will have to put their foot on the brake,” she said.

Read this story in

Portuguese