ELEIÇÕES 2026: Por que o AJUSTE FISCAL é INEVITÁVEL para o FUTURO DA ECONOMIA e dos INVESTIMENTOS?

We need to talk about two topics that are connected. The first of them is the fiscal one. And it's fresh in our minds because this week we're receiving some data from Brasília, some data from the federal government and the Central Bank regarding public accounts that are looking very bad. And this, of course, ties in with the electoral issue that has also been gaining traction, right? So, these are two themes that converse with each other, and it seems to me the market divides this picture into two moments in August. August is important, it was important because it marked the official start of the campaign, for the presidential candidates, mainly, and of course for all other candidates as well , but especially the presidents. And what is being put on the table regarding the fiscal issue. Why do I say that? Because some kind of fiscal adjustment next year is somewhat inevitable. We've already talked about this several times in this same live stream, and here we have a portrait of the problem. The debt level, or debt-to-GDP ratio, reflects a bit of the hole we are falling into, right? Because, if you look at this chart, it rises significantly at the height of the pandemic, reaching 87%of GDP, that is, the debt as a percentage of GDP. It pulls back well right after, I mean, it was a one-off, and now it has been rising consistently, so much so that it reached, in the last 12 months, now at this latest mark, 82.5%of GDP. This is a problem because you no longer have an anchor for where this debt is headed, and what's the problem with that? If you have less certainty about whether the government will pay or not, you charge it higher interest rates. This is a problem specifically for the longer-term yields. This isn't just a Brazilian problem; it's a problem for the whole world. But Brazil, being an emerging country, has some more problematic contours. An emerging country is typically more expensive to invest in, precisely because of this risk premium. So you end up having a worse carry, precisely due to this level of indebtedness that ends up leading to a higher level of interest rates. And then you enter the electoral issue: who will propose a fiscal adjustment? Who will propose the best fiscal adjustment? Who will propose some reorganization of public accounts? With the start of the campaign, since August 16th, which is what we began to notice with the polls that were being released. In fact, this week we saw some polls with some caricatures, like Augusto Curi's, but also some key points: the incumbent is losing traction and the election is wide open today. I'm not here to advocate for the politics of one candidate or another. My point is this: the incumbent candidate has a less fiscally-minded proposal that the market doubts more. And the opposition candidates in general—not just one, but also the main opposition candidate, currently represented by Flávio Bolsonaro— present slightly more fiscally-minded proposals. So, if you have greater competitiveness or a higher chance of a political shift, the market tends to view that favorably, in the sense that, look, there is a better chance of fiscal adjustment. If there's a better chance of fiscal adjustment, interest rates begin to react and risk assets start to gain momentum. We used to say back when the Brazilian stock market rose from '25 to early '26, that the next leg up would come when the long-term interest rate, which had been stressed since late '24, fell; that’s when we would see this second leg. It hasn't come yet, turning with the signal of a fiscal adjustment. So, what we started to see is that in the second half of the month, along with other international phenomena we can discuss later, the market began to interpret a higher chance of a political shift similar to what has been happening in the region as a whole. If we look at South America, we have recent examples from Colombia and Peru where we also saw this political shift from left to right toward slightly more pro-market, more fiscally-minded proposals. The same could happen in Brazil; it could, and a higher chance of that happening has also been reflected in the prices. So, it helps us translate this reality a bit, because the market is so sensitive to the fiscal issue, and what it has seen more recently—at least that—was the portrait of the month of August. Now, in September, this electoral issue heats up for us to enter, right? We are in the last full month before the first round, which happens on October 4th. So now is when we will see who goes to the second round. Today we have two favorites, right, Lula and Flávio Bolsonaro. And what are these proposals, anyway? We've even seen Lula's team, his economic team, making statements and trying to show a greater fiscal commitment. The president himself invited business leaders to the official residence for dinner to show his concern regarding fiscal issues after some slip-ups in his Jornal Nacional interview. So, you have a dialogue from both political spectrums regarding what 2027 will hold for public accounts. That is what has been driving market prices. And it will do so increasingly. I believe. I even found it curious during your talk that you mentioned that from the middle of the month, we had a shift in market sentiment, right? And it was right after the downgrade of Brazil by two international firms, right? That was quite curious. It was like, right? We saw it, because it is curious that we had several downgrades throughout the month. It started with two big firms abroad, JP Morgan and then BCA, and then it went to Citi, Morgan Stanley, and several people either moving to neutral or in some cases underweight, or with some more specific criticism of the carry trade, which was the case with Citi. Anyway, this accumulated, and in parallel, especially in the first half of the month, the stock market at one point broke below 117,000 points, right ? In other words, it fell quite a bit. Yes, that was when we saw a stronger foreign outflow, a movement similar to what had been happening from the second half of April onwards, right? And the opposite of what we saw quite robustly in the first two months of the year, right? A very strong foreign inflow, right? Now, perhaps we are starting to see a new formation of foreign capital inflow. The option books, and Rui can speak to this better , are already starting to signal a certain build-up of positions in Brazil with bets on the elections. That is what we have seen, and we have been commenting a bit about it here at Empiricus, right? We wrote reports on whether or not there will be a fiscal adjustment and the positions related to that. And it is associated, of course, with some positions linked to options as well that benefit from both scenarios, right? Exactly. Yes, there are even those election trades, and we have really seen, as Mateus said, both positions in Bova and Small, and some in Petrobras, which also saw large trades today, some operations. So, we’ve seen this theme gaining traction, and September will be even stronger, right? So, in a way, despite this intraday volatility we’ve seen having some connection to elections, sorry, this topic will actually catch fire now in September, right? So, we really expect some kind of volatility, but always remembering that sometimes people associate volatility with risk, and in fact, volatility can actually help quite a bit, right? The market depends a lot on various factors, but the combination we see of relatively cheap stocks and a potential asymmetry involving interest rates makes us believe there is interesting potential for some companies, many of which we include in our portfolio, right? But always remembering that they need to be reliable companies with cash flow, because we never know what might happen , and if a scenario that isn't so good for the stock market occurs, we know these companies will be able to weather it, right? Yeah.