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Brazil political crisis won't affect our corporate debt stance: manager

Brazil political crisis won't affect our corporate debt stance: manager

The latest political scandal in Brazil will not alter AXA Investment Managers' stance in investing in the country's corporate debt market, according to Sailesh Lad, senior portfolio manager emerging markets at the fund house. 

Lad said Brazil’s already-unpopular President Michel Temer faces the rising risk of impeachment.

This comes after a leading newspaper revealed President Temer had condoned paying ‘hush’ money to a corrupt senior politician in the ongoing ‘Car Wash’ scandal, involving embezzlement at Petrobras.

President Temer has long faced allegations that he was directly involved in the scandal.

'In our view, while politics was always likely to be noisy, the risk that social reforms could be substantially delayed, has likely not been priced into the bond market,' said Lad.

'In terms of the corporate names we like, spreads will widen in sympathy with the move in the sovereign curve but we do not see any fundamental changes in the companies that we are exposed to.

'Most of these names are export-oriented companies and we believe will actually benefit from the weakening of the Brazilian currency.'

According to the manager, with the firm's investment philosophy of holding strong credits based on fundamentals for the long term, and not being swayed by short-term technicals or market volatility, he does not see a need to alter the Brazilian exposure.

'We will obviously be monitoring the situation closely as it unfolds but currently we feel comfortable with our risk.'

Economic conditions

Investors have been keenly watching the progress on fiscal reforms in Brazil to gain greater assurance of Brazil’s credible commitment to spending cuts.

'Government debt (71% of GDP) is high and rising. Political noise will dent confidence and do little to support Brazil’s economic recovery. A weaker real could once again spill over into inflation, complicating expected monetary easing,' said Lad. 

'Policy drift, weak growth and failure to arrest the rise in government debt could see at least Fitch and S&P follow through on their negative outlooks.'

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