by Aleksandar Adamovic
The Brazilian markets (EWZ US) rallied over 6% today as the most recent poll ahead of the presidential election showed the right-wing liberal candidate Jair Bolsonaro consolidating his lead over the left wing candidate ahead of the first round of voting on Sunday. There is a good chance the rally continues if Bolsonaro ends up winning the election later this month. There are though some concerns that Bolsonaro won’t follow-through with his promises of privatization and lowering of taxes.
The Brazilian markets rallied today after a presidential poll showing right-wing candidate Jair Bolsonaro gaining 31% of the votes compared to previously 27%. This means he has a 10-point lead over leftist Workers party candidate Fernando Haddad. The first round of voting is scheduled for this coming Sunday. The two candidates would most likely face each other in a run-off vote on the 28th of October.Source: Bloomberg, Ibope
The business community fully supports Bolsonaro despite his far right-wing ideas. Reuters expand on this;
“Business people and entrepreneurs throughout Brazil in all segments of the public favor Bolsonaro and will actively campaign for him,” Hang said.
Bolsonaro’s growing acceptance among Brazil’s business elites underscores how a polarized political landscape is driving moderates to extremes, and how markets are unsettled by a wide-open and unpredictable race. Those jitters have already slowed the country’s M&A and IPO markets to a crawl and last month sent Brazil’s currency, the real, to a record low against the dollar.
What mostly surprised the pundits were Bolsonaro’s strong support amongst women. Nasdaq elaborates;
Among women voters, Bolsonaro got a solid 6 percentage point bump in the Ibope survey, compared to the same poll a week ago. That came despite the candidate’s history of misogynist comments and a week-long social media campaign using the #elenao – or, #nothim – hashtag in opposition to him. Last weekend also saw the largest female-led street demonstrations Brazil has seen in decades denouncing the candidate.
Markets like Bolsonaro as his economic advisor Guedes favor privatizations and overhauling the tax and pension systems. Bloomberg writes;
“Bolsonaro is and remains the preferred candidate by the market,” said Bernd Berg, a strategist at Woodman Asset Management AG in Zug, Switzerland. If the conservative wins, he said, Brazilian assets will post a “staggering rally of more than 10 percent.”
The real gained over 2.0%, whilst big companies such as Petrobras (PBR US), which we wrote about yesterday gained almost 10%. The U.S. listed Brazilian ETF EWZ have gained more than 6%.
Furthermore, the markets breathed a sigh of relief that the Haddad and the workers party polled high as well. They are not expected to be even keel when it comes to the reforms they had planned.
There are though some concerns about if Bolsonaro will follow-through with the lower taxes and privatization plans. Reuters explains;
But some question how long the Bolsonaro-Guedes partnership might last even if the candidate is elected. Such doubts were heightened last month when Guedes proposed reviving an unpopular financial transactions tax known as the CPMF to raise badly needed revenue. That idea was swiftly shot down by Bolsonaro from the hospital where he has been convalescing. He was stabbed by a mentally disturbed assailant at a campaign rally last month.
Guedes canceled at least two planned public appearances soon after, fueling speculation that he had been effectively muzzled by the campaign for the time being
Markets are for now taking the rosy view that Bolsonaro will follow-through with all the liberalization plans. If he ends up winning and not following through, firing Guedes, then uncertainty would re-enter the Brazilian markets.