Brazil's market rise after presidential election

The Brazilian stock market jumps after election of a pro-business candidate.

Brazilian flag
Source: Bloomberg

The Bovespa index has grown after the Brazilian people elected their new leader, Jair Bolsonaro. The president-elect of the South American country has inspired investors, and the index surged 11% throughout October and increased another 2% after Bolsonaro's victory.

How Bolsonaro won on economic policies

Bolsonaro won the presidential election with 55% of the vote. The former army captain is a far-right conservative leader. He has been called ‘the Trump of the tropics’, in reference to US President Donald Trump, because of his appeal to working-class voters and controversial comments about the LGBT community and women. Despite the international attention to his socially conservative views, the former congressman’s economic agenda likely swayed the Brazilian electorate.

The president-elect has promised to change South America's largest economy and has pledged business-friendly deals, such as cutting environmental protections of the Amazon rainforests. He's also vowed to enact pension reform. Pension payments are growing economic problems for Brazil that take up 8% of the nation’s gross domestic product (GDP).

Bolsonaro has hired one of the top financial advisors in Brazil to craft his policies. Paulo Guedes, an economist educated at the US University of Chicago, has advocated for tax and spending cuts that he believes will reverse the country's deficit. Both he and the newly-elected president want to privatise public companies to drive down costs.

Will the Brazil rally last?

The Bovespa index welcomed the election of a market-driven president, but it remains to be seen if Bolsonaro’s election will have long-term effects on Brazil's economy. The country is a bright spot among other troubled emerging markets, but financial advisors are wary about the length of the bullish run.

‘While the market has reacted positively to the first-round result, uncertainty remains with regard to the pace and scope of fiscal reforms (including the social security reform) that can be implemented by the next administration in light of Brazil’s large fiscal deficit and rising debt burden, and the heavy burden of mandatory spending’, noted Shelly Shetty, senior director of sovereigns at Fitch Ratings.

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