Brazilian equities and country-specific exchange traded funds strengthened Friday ahead of the Sunday presidential elections as investors anticipate the market friendly, right-wing candidate will enact economic reforms once he locks in the win.
The iShares MSCI Brazil Capped ETF (NYSEArca: EWZ) was one of the few areas of the market that was in the green during the sell-off Friday, rising 2.4%.
Brazilian assets gained ahead of the final round of presidential elections on Sunday when the market-preferred presidential candidate Jair Bolsonaro is expected to defeat leftist rival Fernando Haddad, Reuters reports.
Sunday will be the second and final round of voting. Candidates who did not obtain 50% of the popular vote were forced into a run-off among the top two finishers – Bolsonaro had nearly 48% of the vote and Haddad garnered around 35%.
Bolsonaro’s economic policy outlook
Bolsonaro’s economic policy outlook has included a liberal, market-friendly speech by Bolsonaro’s economic advisor, Paulo Guedes. Investors are also looking for details in many of the important topics like taxes, pension reforms and privatization plans.
Additionally, initial announcements on the nominations for economic policy leaders and executive positions at big state-owned enterprises have included a market-friendly nominations and, if confirmed, would be well received by markets, Forbes reports.
“Bolsonaro’s victory is largely priced in, so the real’s gains on Monday are likely to be limited. Focus will now probably rest on Bolsonaro’s appointments and the political course he is going to take, mainly as regards reforms,” analysts at Commerzbank said in a note. “We see the risk that the relief following the run-off will soon be followed by disillusionment. It would seem that the financial markets are very optimistic regarding the new government’s willingness to implement reforms.”
Related: Brazilian ETF Keeps Surging as Presidential Elections Looms
Brazil’s economy was stuck in a recession for two years with high rates to combat inflation while developed markets like the U.S. have real rates at around half a percent even after the recent hikes. Consequently, observers believe the government may push for lower rates to stimulate growth ahead.
“I think they need to cut and cut fast,” Phil Torres, co-head of emerging markets for Aegon Asset Management, told Forbes. “Inflation is low enough. They have room to move and get this economy going again.”
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