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Financials & FinTech research, Galliano’s Financials Research

Victor Galliano

Financials & FinTech research

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Cross Asset Strategy

<ul>
<li>Brazil's Ex-President Michel Temer has been arrested as part of the on-going CarWash (<em>Lava Jato</em>) criminal investigation, on bribery and corruption charges</li>
<li>We believe that this increases the near-term downside risk to the BOVESPA index and blue chips, including the large cap banks</li>
<li>This will also, we believe, heighten the negative "noise" around pension reform, potentially increasing the complexity of the reform process; even if this development alone should not serve to derail it, in our view</li>
<li>Large cap Brazilian banks' share prices have come under pressure recently, and we would expect the market correction to continue in the short term</li>
<li>Nonetheless, we still see potential for <a href="https://www.smartkarma.com/entities/24564" target="_blank" data-smartkarma-citation="entities:24564:1">Banco Do Brasil Sa (BBAS3 BZ)</a> to re-rate over the medium term, and narrow the PBV gap with its core peers, <a href="https://www.smartkarma.com/entities/24550" target="_blank" data-smartkarma-citation="entities:24550:1">Itau Unibanco Holding Sa (ITUB4 BZ)</a> and <a href="https://www.smartkarma.com/entities/24569" target="_blank" data-smartkarma-citation="entities:24569:1">Banco Bradesco Sa (BBDC4 BZ)</a>, as Banco do Brasil's own internal restructuring takes effect</li>
</ul>


Brazil's Ex-President Michel Temer has been arrested as part of the on-going CarWash (Lava Jato) criminal investigation, on bribery and corruption charges
We believe that this increases the near-term downside risk to the BOVESPA index and blue chips, including the large cap banks
This will also, we believe, heighten the negative "noise" around pension reform, potentially increasing the complexity of the reform process; even if this development alone should not serve to derail it, in our view
Large cap Brazilian banks' share prices have come under pressure recently, and we would expect the market correction to continue in the short term
Nonetheless, we still see potential for Banco Do Brasil Sa (BBAS3 BZ) to re-rate over the medium term, and narrow the PBV gap with its core peers, Itau Unibanco Holding Sa (ITUB4 BZ) and Banco Bradesco Sa (BBDC4 BZ), as Banco do Brasil's own internal restructuring takes effect


Brazilian Political Turmoil Adds to Market Volatility, and Concerns on Pension Reform