LatAm Weekly – May 21

BRLMXN Stop-Loss Triggered On May 3rd, we recommended going short MXN – Long BRL with an entry level at 4.819 and a stop-loss at 4.66. During Friday’s (May 17) trading session, the stop-loss was triggered. We exi ted th is position. What went wrong? W e misread the opaque political situation in Brazil. President Bolsonaro is approaching a difficult governing territory . The legal troubles of his son, the protests against his education polic ies , and his contentious relation ship with congress are all chipping away his ability to govern effectively. However, we believe that the probability of passing the pension reform has risen given the increasing number of deputies expressing a favorable opinion (with heavy dilutions likely). W e underestimated the broader market impact that these governability issues posed. Going forward, we believe the rising probability of p ension r eform approval will have a positive effect on the BRL. But there also is a degree of ambiguity amidst a complex external scenario where trade tensions between the US and China remain unresolved and escalating. Argentina – The Fernandez – Fernandez Ticket Get ready! The Argentinean election is about to become weirder. The decision announced over the weekend, that poll-leader Cristina Fernandez de Kirchner would run as VP, caught everyone by surprise. Former cabinet head and occasional critic, Alberto Fernandez, will be the ticket headliner running for President. Bond prices have fallen after the endorsements and support from some moderate Peronista governors. While Alberto Fernandez has no electoral experience and little name recognition, he is both an astute politician and a bridge for some Peronistas. Already, Peronista governors including Lucia Carpacci (Catamarca), Gildo Insfran (Formosa), Sergio Casas (La Rioja), Sergio Uñac (San Juan), Rosana Bertone (Tierra del Fuego) and Juan Luis Manzur (Tucuman) have announced their intentions to support the Fernandez-Fernandez Ticket. Yet, not every Peronista welcomed the move. Juan Schiaretti, the powerful governor from Cordoba, rejected the Fernandez-Fernandez ticket. Also rejecting the ticket was former Economy Minister, Roberto Lavagna who in response, said that he will also be running for the Argentinian-presidency ending months of speculation.