J.P.Morgan upgrades Brazil equities to 'overweight' on election-driven optimism

J.P.Morgan ​raised Brazilian equities to "overweight" on Monday, ​reversing an August downgrade, ‌and said ​it saw a more favorable risk-reward setup for the market following the country's recent electoral ‌outcome. The brokerage said reduced political uncertainty led it to reassess Brazilian assets, prompting the upgrade from "neutral."

"This upside potential is better than what any other ‌LatAm market can offer," J.P.Morgan strategists wrote in a note. Brazil's Bovespa jumped ‌nearly 7.5%, setting the largest Latin Ameican country's main index on track for its biggest one-day jump since the pandemic. Oil heavyweight Petrobras climbed 6.3% while lender BTG ⁠Pactual soared 24%.

The ​call comes ⁠a day after Brazil's presidential election entered a runoff between right-wing Senator Flavio Bolsonaro and incumbent ⁠Luiz Inacio Lula da Silva. Bolsonaro's stronger-than-expected first-round performance boosted expectations of more market-friendly ​policies, supporting Brazilian asset prices and improving investor sentiment. The brokerage forecast ⁠that Brazilian equities could gain about 12% to 20%. Prospects for further reductions in ⁠the benchmark ​Selic rate, supported by a stronger Brazilian real, could further boost stocks, it added.

While Brazilian stocks have trailed some emerging-market peers at ⁠times this year, J.P.Morgan said recent political developments prompted it to take a ⁠more constructive ⁠view vis-a-vis the broader region. Meanwhile, the analysts downgraded Chile to "neutral," citing weaker lithium prices, higher oil costs and subdued domestic ‌economic ‌conditions.