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Strategies & Market Trends : Telebras (TBH) & Brazil -- Ignore unavailable to you. Want to Upgrade?

To: Steve Fancy who wrote (22587)	7/23/2002 5:55:46 PM
From: Steve Fancy	Read Replies (1) \| Respond to of 22640

Emerging debt-Brazil dives as poll fans election woes 23 Jul 2002, 5:09pm ET E-mail or Print this story - - - - - (Adds late day prices, Brazil downgrade) By Susan Schneider NEW YORK, July 23 (Reuters) - Brazil's sovereign bonds swooned on Tuesday as investor concerns over October's presidential vote reached fever pitch after a new poll showed two left-leaning candidates cementing their lead over Wall Street's favorite. Brazil's share of the benchmark J.P. Morgan Emerging Markets Bond Index Plus sank 4.65 percent in terms of daily returns, while spreads over comparable U.S. Treasuries -- a gauge of perceived risk --- widened 1.02 percent to 17.01 percent. With four main presidential candidates battling for Brazil's top office, investors have grown more worried in recent months that the next president could push the nation towards default on its $250 billion net public debt. Those concerns dented Brazil's bonds, which have shed 18 percent so far this year. The fears grew on Tuesday after a Vox Populi poll showed center-left candidate Ciro Gomes widening his support by 3 percentage points to 27 percent and leftist front-runner Luiz Inacio Lula da Silva climbing 1 percentage point to 35 percent. Government candidate Jose Serra, seen by investors as the Brazil's best chance to build on the macroeconomic stability engineered by President Fernando Henrique Cardoso, lost 2 percentage points to 14 percent, confirming a third-place trend seen in other recent polls. The bond drop reflects the belief that "Serra is not going to be a contender in this election as of now and people are pretty unsure of what that means for Brazil going forward," said one emerging debt trader. Both Lula and Gomes have tapped into a hearty appetite for change among voters after more than seven years of President Fernando Henrique Cardoso, according to analysts. Investors, meanwhile, have been fretting about Lula's wide lead for months. Even though the former union boss has moved his Workers Party campaign toward the center in this year's campaign and vowed to respect debt obligations, Wall Street remains leery of Lula because of previous campaigns in which he called for debt restructuring. The swelling of support for Gomes, meanwhile, has added to the mix. Many are still unsure what to make of Gomes' policies, given that he once played a prominent role in the government party but has also talked of extending maturities on local debt. "With Gomes, I think a lot of people don't know a lot about him and they're starting to hear he's a smart guy and that he's coming across pretty well," said another emerging debt trader. "But his views are definitely left, maybe even left of Lula in some cases. And with that there's more panic," the trader added. Underpinning Wall Street's concerns is the fear that the market may not give a left-leaning president enough breathing room to avoid a debt crisis. Experts say uncertainty over Lula or Gomes, even if they vow to maintain some of President Fernando Henrique Cardoso's policies, could sink the real currency and take the costs of paying Brazil's dollar-linked debt to unsustainable levels. "If the conclusion is that the market is not likely to treat them supportively enough -- in other words if the internal markets are not going to keep rolling everything over -- then we do have a problem, even if their language has moderated," said Daniel Tillotson, emerging markets analyst at Prudential Securities. J.P. MORGAN CUTS BRAZIL In the wake of Gomes' rising support, investment bank J.P. Morgan said it had downgraded its recommendation of Brazilian debt to neutral from a slight overweight. J.P. Morgan made the decision on Monday and published the move in a research report on Tuesday. J.P. Morgan also raised Colombian debt to neutral from underweight. Brazil, which accounts for about one-sixth of the broader emerging debt market, helped sink the EMBI-Plus 1.67 percent in terms of daily returns. Emerging markets as a whole were also pinched by a sullen mood in U.S. equity markets, where the Dow Jones Industrial Average (INDEX:$INDU) closed below the 8,000 level on Monday for the first time since mid-October 1998, said traders. Colombian debt shed 3.43 percent in terms of daily returns, while Ecuador lost 5.48 percent and Russia slipped 1.13 percent, according to the EMBI-Plus. Copyright 2002, Reuters News Service