📝 Recommend Clients Reducing Exposure to Brazil: Citi Strategy

Initial thoughts on Brazilian candidate Lula da Silva fiscal prudence were incorrect. The market seemed to have convinced itself that President Lula would be fiscally orthodox, but Lula’s plans to boost spending and his pushback against Henrique Meirelles being his finance chief put that hypothesis into question. Positioning in rates and the currency is likely crowded, which could lead to a longer reaction time than just Thursday’s slump in local assets. We are unwinding short AUD/BRL and recommend clients to reduce exposure in BRL denominated assets. - Citi Strategy