Brazilian stocks have doubled in two years. But recently investors have decided they were “previously wrong to price Brazil to perfection”, say Andres Schipani and Jonathan Wheatley in the Financial Times. The bounce was fuelled by Michel Temer, a market-orientated president with an encouraging structural-reform agenda. A revamp of Brazil’s expensive public-sector pensions is a key element of Temer’s programme, but it looks less likely now. In the past three months, Temer has had to fend off two attempts in the lower house of Congress to expel him from office owing to graft allegations, and his room for manoeuvre is further constrained by national elections due in October 2018. Lawmakers will be loath to tout “a deeply unpopular reform.”
This isn’t the end of the reform story, says Capital Economics, but momentum will slow. Measures that merely require a majority in Congress, such as privatising state assets, will pass, but anything needing a constitutional amendment (implying a 60% majority in both houses of Congress), such as pension reform, looks “doomed”. The rally could be over for now.