J.P.Morgan: Enough Risks Are Priced-In Already

J.P.Morgan note that "political and fiscal uncertainty are not going away any time soon. Yet, the recent re-pricing warrants being more constructive in BRL and local rates. The (high) beta to the asset class will likely help at these levels, and deviations such as the current one were followed by a significant outperformance of BRL vs. EMFX in the past. Both BRL and rates valuations have moved into cheap territory according to our models that include fundamentals and technicals, in a context where positions remain light. At this stage, balance of risks suggests there is more space for a rally on a market friendly budget outcome than there is for pressures otherwise, and once the fiscal uncertainty lessens (even if the outcome is not the most market friendly one), focus can shift into other fundamentals, which are more supportive. Consistently, we move to neutral (from UW) local bonds in our GBI-EM Model Portfolio."