Key Takeaways
- • Ninety One's emerging markets transition debt portfolio manager Matt Christ says Brazil remains "a key focus" for the firm's private lending, in both its current portfolio and pipeline, despite the October presidential runoff.
- • Christ expects part of the market rally following the first round to reverse regardless of the winner, with fiscal reform likely to be difficult under either president given a fragmented, right-leaning Congress.
- • Ninety One is still reviewing deals and favours USD earners such as renewables, data centres and grid infrastructure, whose cash flows it expects to hold up under either result.
- • The firm views current uncertainty as a window for lenders to capture a risk premium expected to compress once the vote is settled.
- • Ninety One lends against stated collateral secured through a bankruptcy-remote fiduciary lien, and says it wants to stay out of local restructuring processes.
Summary
Brazil's presidential runoff on 25 October has put much of the country's capital markets on hold, though some private lenders see the pause as a reason to lend now, according to the source article from Alternative Credit Investor. Senator Flávio Bolsonaro of the Liberal Party took about 47 per cent of valid votes in the first round on 4 October, against 44.9 per cent for President Luiz Inácio Lula da Silva, who is seeking a fourth non-consecutive term. São Paulo stocks rose as much as eight per cent the following day and the real gained 1.4 per cent against the dollar on hopes that a Bolsonaro win would bring more fiscal discipline.
Matt Christ, emerging markets transition debt portfolio manager at Ninety One, said contacts in Brazil doubt those gains will last. "Most people we have spoken to on the ground are less optimistic and expect part of the rally to reverse whoever wins," he said, adding that "the open questions are how soon and by how much." He argued that fiscal credibility drives local rates and that fiscal reform will be hard under either president, as whoever wins will govern with a fragmented, right-leaning Congress in which no bloc holds a majority and which controls much of the budget.
Turnout may prove decisive. About 21 per cent of voters stayed home in the first round, the highest share since 1998, and Lula has urged supporters to turn out for the runoff. Christ described Brazil as "a key focus" for Ninety One's private lending, citing access to natural resources, arable land, water and a commitment to sustainability as reasons it is a top destination for energy transition investment in emerging markets. Most new issuance is waiting for the result, but his team continues to review deals, favouring natural USD earners such as renewables, data centres and grid infrastructure.
Christ framed the uncertainty as an opportunity: "Uncertainty is still priced in today, so lenders can capture a risk premium that is likely to compress once the vote is settled." Ninety One's lending is collateral-based, with loans secured through a bankruptcy-remote fiduciary lien. Christ said that while local restructuring has improved in recent decades, lenders should still seek to remain outside that process. The firm's best case, he said, is "a credible fiscal anchor, which would bring long rates down and speed up rate cuts, helping leveraged local borrowers and reopening the debenture and USD markets."
Matt Christ, emerging markets transition debt portfolio manager at Ninety One, said contacts in Brazil doubt those gains will last. "Most people we have spoken to on the ground are less optimistic and expect part of the rally to reverse whoever wins," he said, adding that "the open questions are how soon and by how much." He argued that fiscal credibility drives local rates and that fiscal reform will be hard under either president, as whoever wins will govern with a fragmented, right-leaning Congress in which no bloc holds a majority and which controls much of the budget.
Turnout may prove decisive. About 21 per cent of voters stayed home in the first round, the highest share since 1998, and Lula has urged supporters to turn out for the runoff. Christ described Brazil as "a key focus" for Ninety One's private lending, citing access to natural resources, arable land, water and a commitment to sustainability as reasons it is a top destination for energy transition investment in emerging markets. Most new issuance is waiting for the result, but his team continues to review deals, favouring natural USD earners such as renewables, data centres and grid infrastructure.
Christ framed the uncertainty as an opportunity: "Uncertainty is still priced in today, so lenders can capture a risk premium that is likely to compress once the vote is settled." Ninety One's lending is collateral-based, with loans secured through a bankruptcy-remote fiduciary lien. Christ said that while local restructuring has improved in recent decades, lenders should still seek to remain outside that process. The firm's best case, he said, is "a credible fiscal anchor, which would bring long rates down and speed up rate cuts, helping leveraged local borrowers and reopening the debenture and USD markets."
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