Lula da Silva, the Brazilian president, appears to be enjoying a honeymoon period following concerns...
Lula da Silva, the Brazilian president, appears to be enjoying a honeymoon period following concerns among investors about his previous hard-left stance. Since winning the presidential elections in October 2002, the new president has made a series of reassuring statements that have appealed to investors and the wider electorate.
Rupert Brandt, director of Latin American equities at F&C, says there had been concerns about Lula's political agenda. 'He was in opposition for 10 years and was against pro-market reform,' he explains.
'But in the past few years he has altered his policies and, going into the election, he offered a new political platform. Even so, at the time of the election, the market was not giving Lula the benefit of the doubt.'
Brandt notes that since Lula came to power, he has kept to the policies he promised.
'The market felt he would introduce left-wing policies but all his main appointments have been credible people who are pro-market reform and are aware that a better macro-economic environment is required,' he adds.
'He is carrying out his policies in an orthodox manner, and while he was formerly perceived as being a threat he is now regarded as a pro-market reformer.
'This has caused a strong reaction in the market so, while it had been based on fear, it is now based on greed.'
According to Brandt, economic spending is likely to be up in the second half of the year. 'We are expecting 2% GDP growth and feel inflation will peak in either May or June,' he says. 'Interest rates are also expected to decline. There is enormous room for rates to come down but this will only happen once there is proof that inflation has peaked.'
Brandt believes that around half of Lula's reforms are likely to be passed by the end of 2003 and the beginning of 2004. 'He has a constructive agenda and the reforms are a positive development for the country,' he says. 'Even if only 50% of his reforms are passed that will be a positive catalyst for the stock market.'
Jules Mort, a Latin American equities manager at Threadneedle Investments, agrees that Lula has confounded those who had concerns about him ahead of the October elections. 'This saw the currency fall significantly against the dollar but, since Lula took office in January, he has managed to revive confidence in the markets,' he says.
'Now, although it is difficult to implement reforms in Latin America, Lula needs to implement simplified tax reforms and, if he manages to pass some of them, it will be positive news for the country.'
Elsewhere in Latin America, Aberdeen Emerging Markets manager Peter Hames says: 'A market charge in Argentina was recently halted by concerns over elections and uncertainty over how the government-elect will tackle the battered banking system and resolve the country's political and economic ills.'
However, Gartmore Emerging Markets Opportunities manager Chris Palmer says Latin America's major markets have generally bucked the negative trends seen in other emerging markets such as Asia, which has suffered a number of negatives including the outbreak of the Sars virus.
Pro-market reforms from new president.
Interest rates expected to be lowered.
GDP growth of 2% expected this year.
Left-wing history of president.
Inflation has still to peak.
Difficulty of implementing reforms.
Moves to overweight equities and fixed income
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