By Gabriel Burin and Abraham Gonzalez
BUENOS AIRES/MEXICO CITY, Aug 26 (Reuters) - Brazilian stocks are poised to notch more modest gains, ending 2020 with a minor setback and almost fully recovered from the coronavirus-related panic of the first quarter, a Reuters poll of market strategists showed.
They will still likely underperform record-breaking Wall Street, on worries over the second highest toll of coronavirus cases in the world after the United States and on investor nervousness around a ballooning fiscal deficit.
Despite the pick-up in domestic equities, the spread of COVID-19 and its impact in Brazil and other emerging markets saddled with chronic problems have led many investors to cut local exposure and add more U.S. stocks on hopes of a quicker recovery in the world's biggest economy.
The benchmark Bovespa stock index .BVSP is forecast to finish this year almost 5.0% below where it ended 2019. This would conclude a four-year rally but is still up 60% from the market nadir at the start of the health crisis in March.
The median estimate of 17 equity strategists polled Aug. 12-25 for the Bovespa at the close of the last trading day of December is 110,000 points, up more than 7% from now and well above the 89,700 mark forecast in May.
Estimates were in a 104,000-125,000 point range.
"The upside could lose intensity if the persistent COVID-19 spikes again and forces new lockdowns globally, but any potential correction wouldn't be severe," Alexandre Marques, an analyst at Elite Investimentos in Sao Paulo, said, citing the ongoing reach for risk amid loose financial conditions globally.
The Bovespa's advance stalled in August on growing concerns that President Jair Bolsonaro's government could ditch strict austerity rules in order to keep pushing large spending programs even when and if the virus begins to recede.
"As the pandemic unfolds, the question is how the government is going to cope with the serious problem of a worsening budget," Marques said. Other analysts agreed, citing the fiscal front as the main driver for stocks in a separate question.
In Mexico, the S&P/BMV IPC index .MXX is set to finish the year at 39,750 points, just below 40,000 forecast in May. This would leave it down about 9.0%, at its worst close in nine years.
"Contrary to expectations of a V-shaped recovery in the U.S., Mexican market participants have been more inclined to see a slow recovery or a long recession," said Luis Alvarado, an analyst at Banco Base in Mexico.
Reuters polls of economists, however, predict a weaker U.S. recovery than the stock market is hoping for. ECILT/US
Most local companies will likely take a hit from a weak domestic economy, while just those benefiting from higher global commodity prices are better-suited to ride the post-coronavirus cycle, he added.
Pessimism will continue acting as a break, however, with recent corruption scandals adding to investor worries over a historic recession, trade tensions and potential protectionist rhetoric before the U.S. presidential election in November.
(Reporting by Gabriel Burin; Additional polling by Abraham Gonzalez in Mexico City, Peter Siqueira in Sao Paulo; Khushboo Mittal and Sarmista Sen in Bangalore; Editing by Ross Finley and Steve Orlofsky)
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