SAO PAULO (Reuters) – Brazil’s Bovespa has rocketed to a 6.6 percent gain so far this year, making it the world’s second-best performing stock market, but exchange data shows a persistent exodus of foreign capital in the early days of a new market-friendly administration.

Many foreign investors remain reluctant to raise their exposure to Latin America’s largest economy after getting burned by volatility in the past, as with a lengthy market bust starting in 2011 that followed a commodities-fueled bubble. They are looking for more than cheery rhetoric from newly elected President Jair Bolsonaro, many market watchers said.

Daniel Gewehr, head of Latin America Equity Strategy for Santander Brasil in Sao Paulo, citing his close contact with foreign stock investors, said many are waiting for concrete signs of progress, particularly on a pension reform that may struggle to win support in Congress.

“They don’t expect necessarily the approval of the pension reform in short-term, but a positive momentum that would come with actions such as a privatization plan or implementing a proposal for central bank independence,” he said.

The far-right leader and his economic advisors, dubbed the “Chicago boys” for their ties with Nobel laureate Milton Friedman’s alma mater, have promised to cut the country’s large budget deficit, privatize a raft of state-owned companies and open the economy to more competition.

Those pledges have been music to the ears of investors in general, but particularly local funds, who have been key actors behind the recent rally.

Most remain eager for signs of how Bolsonaro and his Economy Minister Paulo Guedes will tackle the country’s public debt, now at around 77 percent of GDP.

An improvement on that front could bring down long-term interest rate futures, something that would boost investment in stocks.

‘PRUDENT’

The Benchmark Ibovespa index .BVSP touched an all-time peak of 93,987 points on Thursday.

B3 exchange data shows, however, a net outflow of 1.1 billion reais from foreign investors’ transactions by Jan. 9, extending a net outflow of 11.5 billion reais in 2018.

Jorge Mariscal, chief investment officer of emerging markets at UBS Wealth Management in New York, said the Brazilian stock market was one of the best performing last year and a lot of optimism had been priced in, so “reducing some exposure is a prudent thing to do.”

“There are some political hurdles to approving a pension reform but positive momentum is building. If the reform is approved I would expect fund flows to turn positive again,” he said.

Others insisted the time to buy is now.

Pablo Riveroll, head of Latin American equities and portfolio manager at Schroders in London, believes Brazil is one of the most attractive emerging markets.

“It has a domestic cyclical recovery which is relatively independent of global growth, and we think valuations are still attractive in spite of decent market performance,” he said.

“We are overweight Brazil and have added to Brazil in recent months,” he added.

Of the 66 stocks traded on the B3 exchange, only nine were in negative territory for the year as of Friday’s close.

Chris Dhanraj, head of U.S. iShares Investment Strategy at Blackrock in New York, said Brazil’s accelerating growth and excess capacity are a powerful combination for earnings growth. But he agrees with a general view that investors are waiting for more solid steps by the government towards reforms.

The first weeks of the new government may have helped fuel that caution. Divisions have emerged quickly among Bolsonaro’s ministers, with infighting and policy flip-flops.

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