Balancing fiscal continuity with state-led developmentalism in the Brazilian market
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Markets expect significant 'dovish' pressure on Central Bank leadership appointments, potentially causing a risk premium spike in long-end DI futures. The stability of the Selic will depend heavily on whether the cabinet maintains adherence to fiscal rules.
The primary risk is 'state-led credit' expansion where state-owned banks like Banco do Brasil (BBAS3) are directed to underprice credit, forcing private banks like Itaú (ITUB4) to compress margins or lose market share.
Privatization is off the table; the expectation is a shift toward a 'mixed-governance' model where Petrobras acts as a proxy for social-industrial policy, likely prioritizing local energy transition infrastructure over shareholder dividends.
Sectors tied to public-private infrastructure, particularly sanitation and transmission-focused renewables, are projected to benefit due to the administration's historical focus on regional development.
The consensus is bearish on long-duration nominal bonds (NTN-Bs) due to uncertainty regarding future inflation anchoring, favoring defensive positioning or inflation-indexed instruments.
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