Brazilian stocks soar the most in 2 years after far-right candidate wins first election round

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Brazilian stocks soar the most in 2 years after far-right candidate wins first election round

Supporters of Jair Bolsonaro, presidential candidate for the Social Liberal Party (PSL), celebrate after polls closed during the first round of presidential elections in Rio de Janeiro, Brazil, on Sunday, Oct. 7, 2018. Bolsonaro shot into the lead in Brazil's presidential vote in one of the most divisive elections in the country's history, the first official results showed. Photographer: Dado Galdieri/Bloomberg via Getty ImagesBloomberg | Bloomberg | Getty Images Supporters of Jair Bolsonaro, presidential candidate for the Social Liberal Party (PSL), celebrate after polls closed during the first round of presidential elections in Rio de Janeiro, Brazil, on Sunday, Oct. 7, 2018. Bolso naro shot into the lead in Brazil's presidential vote in one of the most divisive elections in the country's history, the first official results showed. Photographer: Dado Galdieri/Bloomberg via Getty Images

Brazilian stocks rose sharply Monday after far-right presidential candidate Jair Bolsonaro left his opponents in the dust in the first round of voting.

The benchmark Brazilian Bovespa index gained 5.5 percent on Monday. The iShares MSCI Brazil exchange-traded fund (EWZ) jumped 7.2 percent and was on pace for its biggest one-day gain since March 17, 2016, when it rose 8.9 percent.

Bolsonaro garnered 46.7 percent of the votes in Sunday's first round, much more than any other candidate. Former Sao Paulo Mayor Fernando Haddad came in second with 28.5 percent.

Polls leading up to Sunday's vote predicted a Bolsonaro victory, but the former army captain far outperformed those forecasts. A second voting round will be held Oct. 28 because no candidate received more than 50 percent.

Larry McDonald, head of the U.S. macro strategies at ACG Analytics and editor of The Bear Traps Report, said in a note Sunday that the polls leading up to the first round were "discounting" the conservative vote in Brazil. "There's an invisible tailwind behind this former General."

Investors have recently cheered Bolsonaro because they favor his economic platform. Throughout his campaign, Bolsonaro said he wants the Brazilian central bank to be more independent and to privatize state-run companies. Bolsonaro has also promised to take a tough st ance against corruption. Meanwhile, investors fear a Haddad victory would maintain the types of policies that that have pressured Brazil's economy.

Haddad became the Workers Party candidate after a court banned former President Luiz Inacio Lula da Silva from running again. Da Silva, better known as Lula, is serving a 12-year sentence for corruption. Lula's government â€" along with that of Dilma Rousseff, his successor â€" led to a ballooning fiscal deficit and contributed to an unsustainable pension system.

The Brazilian real rallied more than 2 percent against the U.S. dollar on Monday, trading at 3.75. Joao Ribeiro, a LatAm strategist at Nomura, expects the rally to continue "over coming days should the market solidify its conviction in a Bolsonaro victory in the second round."

"Although markets should rally as the left-wing victory tail risks dissipate, the sustainability of the rally will be highly dependent upon the likelihood of meaningful fiscal reform next year, which is still uncertain and will be a key focus of markets after the election," Ribeiro said in a note.

Brazilian stocks rose sharply last week ahead of Sunday's vote. The EWZ surged 8.7 percent while the Bovespa index gained 3.8 percent.

"Clients should be overweight Brazil and emerging market equities," McDonald said. "We believe emerging market equities will substantially outperform the S&P 500 over the next two to three years. Commodity producing countries like Brazil will be standout leaders."

Source: Google News South Brazil | Netizen 24 Brazil

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