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

To: wl9839 who wrote (15387)	5/19/1999 10:03:00 AM
From: wl9839	Read Replies (2) \| Respond to of 22640

Credit Suisse's Watt on Brazilian Politics: Market Comment New York, May 19 (Bloomberg) - Richard Watt, who manages $2 billion in emerging market equities at Credit Suisse Asset Management in New York, comments on market impact of recent political tension within the governing coalition of Brazilian President Fernando Henrique Cardoso that led to a retreat on the topic of establishing a minimum age for pensioners. ''Every time Brazil has got itself into a crisis it has acted with surprising speed in terms of addressing the core aspects of the problem. The difficulty has been after those actions, there has been a lack of follow through.'' ''Definitely the pressure is off because the success of the IMF package and the fiscal measures. If history is any guide, then you would expect there to be some backsliding.'' ''The market will be suspicious about some backsliding.'' Still, they're more concerned about ''what happens with the dollar and the long bond.'' ''Most people realize that having a primary surplus of about 3 percent is fine in the short term. In the longer term, though, the country needs a surplus of 5 percent'' to keep the deficit in control. ''You have these multiple elections and you typically find that the local governor is king. It's just an added element of uncertainty that we'll be watching closely.'' The most important question though, is: ''Will Brazil finally do something about this crazy tax system they have with all these layers. The tax burden is very high and tends to fall disproportionately.'' Positive developments on the monetary front: ''The central bank is much more independent and (those changes are) likely to be institutionalized. He said he expects rates to be cut another 2 percentage points today to 25percent. ''They've got to start being a little bit careful now. In the past there has been a tendency to overshoot rates on the downside. Now, I do believe that there's a much better bias and prudent management of overall monetary policy. It's hard to bet against Arminio Fraga.'' ''In general terms we've been tending to focus more on the blue chips, the liquid securities.'' He said his funds started the year concentrating on exporters' stocks such as Cia. Vale do Rio Doce and Aracruz Celulose SA. Since then, ''we've started to switch more to domestic demand securities. Things like Banco Itau, Brahma and Pao de Acucar. We've tended to steer away from electricity companies since they have less flexibility. When I compare Brazil against Mexico an awful lot of good news is priced into stocks in Mexico. A lot of fiscal concerns are holding back stocks in Brazil.'' ------------------------------------------------------------------------ © Copyright 1999, Bloomberg L.P. All Rights Reserved.