August 22, 2018 / 3:27 PM / 10 months ago

EMERGING MARKETS-Brazil real extends pre-election selloff, other EM currencies firm

    By Bruno Federowski
    BRASILIA, Aug 22 (Reuters) - The Brazilian real on Wednesday
extended its selloff past the 4 to the dollar milestone as
investors turned increasingly pessimistic over the October
presidential elections.
    A string of voter intention polls have shown business
favorite Geraldo Alckmin stuck in the single-digits. Jailed
former president Luiz Inácio Lula da Silva has consistently led
the ballot, followed by far-right lawmaker Jair Bolsonaro.
    Alckmin is backed by a wide bloc of centrist parties and has
pledged to implement budget cuts and structural reforms that
investors see as key to bringing back Brazil's investment-grade
sovereign rating.
    But the recent surveys have frustrated those in the market
who thought Alckmin's strong standing among the political
establishment would translate into votes.
    Though Lula is unlikely to be allowed to run, expectations
are growing that his supporters may back his second-in-line
Fernando Haddad, though he is polling at low single digits.
    Bolsonaro, meanwhile, has tapped investment banker Paulo
Guedes to spearhead his economic platform, but his erratic
stance over policy and controversial remarks on social issues
have driven some doubt that he could count on support in
    "Surveys are pointing to a clear-cut scenario where Alckmin
does not take flight," Rico Investimentos brokerage analyst
Roberto Indech said.
    The Brazilian real slipped around 1 percent, nearing
an all-time low. The currency fell in the last six trading days,
a move that accelerated after it breached the 4 to the dollar
level on Tuesday for the first time since February 2016.
    Other emerging currencies were mostly up, with currencies
from Mexico, Chile, Colombia and Peru
 firming between 0.3 percent and 0.6 percent.
    Risky assets found support this week after U.S. President
Donald Trump's criticism of the Federal Reserve's interest rate
hikes, which seemed to question the central bank's independence.
    Now, investors will turn their attention to the minutes of
the Fed's last meeting later in the day, which are expected to
confirm it is on course to raise rates twice more this year.
    Higher rates could lure away capital from emerging markets,
which offer steeper returns.
    Key Latin American stock indexes and currencies at 1720 GMT:
 Stock indexes                                daily %    YTD %
                                     Latest    change   change
 MSCI Emerging Markets               1044.31     1.03    -9.85
 MSCI LatAm                          2492.70    -0.64   -11.86
 Brazil Bovespa                     75401.76     0.29    -1.31
 Mexico IPC                         49603.83     0.53     0.51
 Chile IPSA                          5256.93     0.11     0.11
 Argentina MerVal                   26045.93        0   -13.37
 Colombia IGBC                      12143.22     0.17     6.79
 Currencies                                   daily %    YTD %
                                               change   change
 Brazil real                          4.0760    -0.96   -18.71
 Mexico peso                         18.8371     0.61     4.58
 Chile peso                           660.71     0.47    -6.97
 Colombia peso                       2968.53     0.29     0.45
 Peru sol                              3.287     0.18    -1.52
 Argentina peso (interbank)          30.1300    -0.43   -38.27
 Argentina peso (parallel)              30.3    -1.32   -36.53
 (Reporting by Bruno Federowski; Additional reporting by Claudia
Violante in São Paulo; Editing by Meredith Mazzilli)
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