April 30, 2019 / 4:33 PM / a year ago

Investors cut Brazil pension reform savings expectations to 620 bln reais -survey

BRASILIA, April 30 (Reuters) - Investors have reduced the amount of expected savings over the next decade from Brazil’s social security reform to 620 billion reais ($157.8 billion) from 690 billion reais only two months ago, according to the average estimate in a Morgan Stanley client poll.

While 95 percent of the more than 125 respondents expect Congress to eventually pass pension reform legislation, the bill’s slow and complicated journey in recent weeks has forced investors to lower their expectations.

Savings of 620 billion reais would be a “more reasonable” expectation, Morgan Stanley said. But that would represent only half the upwardly revised 1.237 trillion reais target announced earlier this month by the government.

The latest average estimate is 10 percent down from Morgan Stanley’s previous client survey in February, and masks some remarkable opinion shifts in just two months.

Forty-two percent of respondents now expect savings of 600 billion reais or less, more than double the 20 percent from February, while the percentage of respondents predicting 500 billion reais or less tripled to 12 percent from 4 percent.

The share of those expecting savings of 700 billion to 800 billion reais almost halved to 16 percent from 29 percent in February, and the share of investors expecting more than 800 billion reais fell to 11 percent from 18 percent, the poll showed.

The big increase was in the 500 billion to 600 billion reais savings bracket. Some 30 percent of those polled now expect this level of savings, almost double the 16 percent in February.

Investors overwhelmingly expect the lower house to approve pension reform in the second half of this year. Only 5 percent of those polled expect Lower House approval before the end of June, the target that senior lawmakers and government officials, from President Jair Bolsonaro down, are still sticking to.

Thirty percent of those surveyed say it will be August, 23 percent say September, and 20 percent say July. In the last poll, 39 percent of investors expected a Lower House vote in the first half of the year, probably June.

The survey also showed that investors’ bullishness on the real has faded. Clients see the real strengthening only a little by the end of the year to 3.85 per dollar from just under 4.00 currently, rather than 3.60 in the previous survey. ($1 = 3.9300 Brazilian reais) (Reporting by Jamie McGeever, editing by G Crosse)

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