Citi and BCA downgrade Brazil asset recommendations after Lula's reelection

Citigroup and BCA Research downgraded their recommendations for Brazilian assets following President Luiz Inácio Lula da Silva's election victory, citing a deteriorated risk-return profile for stocks, bonds, and the currency as investors reassess fiscal discipline and reform prospects. The downgrades reflect broader investor repositioning, with strategists warning that looser fiscal policy, weaker public debt dynamics, and slower progress on growth-oriented reforms could weigh on Brazilian markets, despite constraints from a more conservative Congress. Citi closed its bullish positions on Monday, removing its 'overweight' recommendation on equities and ending its long position on the real. Brazilian assets plunged on Monday, with the real falling over 11% against the dollar and the Bovespa index dropping 13.9%, its worst single-day decline since March 2020. BCA Research downgraded Brazilian stocks from 'neutral' to 'underweight' and local currency bonds and sovereign credit from 'overweight' to 'underweight', citing rising default risks, weaker growth prospects, and inflationary pressures.