(Bloomberg) -- The fires raging through Brazil's Amazon rainforest could end up hurting investment in the stock market of Latin America's biggest nation, according to JPMorgan.
“We are resistant to attribute the recent underperformance of Brazilian equities to the global commotion on the Amazon,” JPMorgan strategists led by Emy Shayo Cherman wrote in a report from Aug. 27. “But we recognize that it has entered the list of yellow flags,” they said, reiterating an overweight rating for Brazil stocks.
The Brazilian government has come under pressure as the Amazon rainforest burns at a record rate, according to data from the National Institute of Space Research. While G-7 members agreed to provide an immediate 20 million euros ($22 million) to combat fires, President Jair Bolsonaro conditioned his acceptance on an apology from French President Emmanuel Macron, who threatened to block the European Union's trade deal with Mercosur countries and branded Bolsonaro a liar.
JPMorgan said potential sanctions and trade restrictions pose risks, but added that the end of the trade agreement between Europe and South America isn't likely at this point.
“From the investment point of view, we believe that decisions were not impaired by the Amazon noise, but could in the future,” strategists wrote.
Brazil's benchmark Ibovespa equity index is down more than 4% since the beginning of August, heading for the biggest monthly drop in more than a year. JPMorgan expects the Ibovespa to end this year at 108,000, implying about a 10% increase from current levels.
--With assistance from Bruce Douglas and Felipe Marques.
To contact the reporter on this story: Vinícius Andrade in São Paulo at vandrade3@bloomberg.net
To contact the editors responsible for this story: Brad Olesen at bolesen3@bloomberg.net, Jim Silver, Jennifer Bissell-Linsk
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