Brazilian Real: Volatility stays elevated following Brazil election shock – MUFG

Brazil’s election-related market sell-off could bring further volatility, MUFG’s Halpenny cautions. A Congress leaning to the right may oblige President Lula da Silva to make policy compromises, but investors could nonetheless price in worst-case scenarios. Earlier liquidations of positions, however, suggest that contagion across Latin American markets may remain limited.

Brazil sell-off leaves contagion across LatAm limited

"The scale of the move is still significant and marks the potential for further volatility in Brazil markets over the coming days."

"This could force Lula to compromise in order to make any progress with policy."

"But that will not become clear immediately and hence investors will be quick to assume the worst leaving the markets vulnerable."

"What does look clear from the initial reaction is that this is being viewed understandably as very Brazil-specific with little sign of contagion in the region."

"However, the limited sign of contagion reflects the fact that there has already been a position clear-out."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)