Venezuela: Opposition Candidate Capriles Would Struggle To Control Country; + Brazilian Stocks Could Rise Further
Venezuela will hold pivotal presidential elections on October 7, 2012. The elections are pivotal because the opposition arguably has its best chance of winning the presidency, and because there is lingering uncertainty over the health of President Hugo Chávez, who has been receiving treatment for cancer this year.
However, it is far from clear if the elections will be free and fair. Several powerful military officials seem committed to preventing opposition candidate Henrique Capriles Radonski from taking power, if he wins.
Even if Capriles does manage to take office, we believe that he would struggle to exert significant influence over many of Venezuela’s institutions, which are loyal to Chávez. In a recent scenario article published on Business Monitor Online, we discuss the difficulties Capriles would face in exerting influence over the National Assembly, state governorships, the Supreme Court, the armed forces, and militias. He would also need to roll back Cuban influence in Venezuela, which has risen under the Chavez presidency. Overall, we believe that it would take many years to reverse Chávez’s influence, and thus a quick fix to Venezuela’s dire economic and social problems is highly unlikely.
Bullish Near-Term Outlook On Brazilian Stocks
Meanwhile, we initiated a bullish Brazilian equities view in our Key Market Views on Wednesday, July 18 at the 54,450 level, targeting a short-term move to trendline resistance around 56,400. We have previously noted that seemingly attractive valuations and an increasingly constructive technical picture could prompt the index to pare some of its recent losses.
Indeed, the index is trading at a price-to-earnings ratio of just 11.4x, making it one of the cheapest major bourses in Latin America, and with a bullish divergence on the daily relative strength index (RSI), we see potential for the Bovespa to head higher over the coming days.
Furthermore, following a bullish break of Brent crude oil above the US$103/bbl level, we see potential for rising oil prices to buoy Brazilian energy stocks such as Petrobras, which have been particularly hard hit in recent months. Still, given substantial global macroeconomic uncertainties and significant volatility in the Bovespa in recent weeks, we would revisit our upbeat view should the index break below short-term support around the 54,000 level.