Brazil election risk prompts hedge funds to trim popular real carry trade
Brazil’s upcoming presidential election is beginning to unsettle investors, with several asset managers reducing exposure to the Brazilian real and local bonds after a strong run for the country’s carry trade, according to a report by Bloomberg.
Foreign investors are retreating from Brazil as the upcoming October election approaches. Major banks and funds are cutting their investments in the Brazilian real and local shares. The Ibovespa, Brazil's main stock index, has fallen for a ninth consecutive session, marking its worst losing streak since 2023. Citi, one of the world's largest banks, removed the Brazilian real from its favored bets, citing a likely Lula election win as unsettling markets.
The Ibovespa closed at a seven-month low of 166,934 points on Friday, marking the ninth consecutive day of losses. The market has shed approximately 6.2% over the nine sessions, and 3.2% for the week. Brazil's major lenders led the decline, with Itau Unibanco dropping R$43.5 billion (US$8.4 billion) in market value alone. Petrobras, the oil giant, saw a market value loss of roughly R$18.55 billion (US$3.6 billion) during the same period.
Citi's decision to remove the Brazilian real from its carry-trade basket and replace it with the South African rand indicates a broader market concern. Foreign investors are pulling out, with Citi reporting that about R$1.6 billion (US$308 million) was withdrawn from Brazilian stocks in one day alone. The real's value has weakened to near R$5.19 against the US dollar, making imports pricier and potentially leading to inflation.
This is the longest consecutive losing streak since August 2023, when the Ibovespa fell for 13 straight sessions.
Written by urgent.news from The Rio Times's reporting — not their text. Machine-written — may contain errors; check the original before relying on it.
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