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BRASILIA / SAO PAULO (Reuters) – Brazilian markets advanced on Monday after far right candidate Jair Bolsonaro took a huge lead in the first round of voting, bolstering investors' hope for a boost. tackle a growing budget deficit and privatize key businesses.
Jair Bolsonaro, far-right MP and presidential candidate of the Social-Liberal Party (PSL), gesture after vote, in Rio de Janeiro, Brazil, October 7, 2018. REUTERS / Pilar Olivares
The Bovespa .BVSP benchmark rose 3.6% to 85,307 under the aegis of the state-controlled oil company Petróleo Brasileiro SA (PETR4.SA), which contributed more than 500 points to Bovespa's gain of 2,985 points.
Utilities Centrais Elétricas Brasileiras SA (ELET6.SA), which Bolsonaro said it wants to privatize, climbed 12%.
The Brazilian currency, the real BRBY, gained 3.7% against the US dollar, the strongest since August, while the yield on the forward rate contracts <0#DIJ:> Falls suddenly.
Bolsonaro, declared apologist of the Brazilian military dictatorship of 1964-1985, did not obtain the necessary majority to avoid the second turn. He will face leftist Fernando Haddad, the former mayor of São Paulo, during a second round of voting on October 28th.
Brazilian markets have already recovered in recent weeks, with polls showing a steady lead for Bolsonaro, a long-time statist who later converted to an orthodox economic policy after hiring a banker. trained at the University of Chicago as Senior Economic Advisor.
Bolsonaro, who served for decades as a legislator in the lower house, has pledged to fight crime and corruption, seizing voter anger at the institution after a series of corruption scandals. he blamed the Workers Party of Haddad.
His strong performance in the polls surpassed even the most favorable big surveys and he managed to turn his once-tiny party into a congressional center, suggesting that he could have easier reforms than expected.
"If you withdraw the votes of each member of the lower house on the left, you will still have enough votes to adopt the necessary reforms," said David Souccar, who helps manage emerging market assets of a value of $ 20 billion for Vontobel Quality Growth. "Even if Haddad wins, it's obvious that he will have to take action towards the center."
Vontobel holds approximately 10% of its emerging markets portfolio in Brazil, compared with a 6% exposure for the emerging markets index MSCI .MSCIEF. It focused on companies that could benefit from a consumption-led recovery as part of a progressive tax reform – such as the drinks company Ambev SA (ABEV3.SA) and Itaú Unibanco Holding SA (ITUB4.SA), the largest private bank in the country.
Itaú Unibanco and his rival Banco Bradesco SA (BBDC4.SA), along with Petrobras, was one of the main contributors to the Bovespa gain.
Souccar's bullish feelings were widely shared. Banco BTG Pactual SA's strategists have stated that the Bovespa .BVSP benchmark is trading at multiples below its historical average and could now rise to around 90,000.
If Bolsonaro wins a second round, it will be "not surprised" if the index reached 105,000, shares of state-controlled companies, consumption and real estate are among the winners.
The strategists of Santander Brasil have raised their recommendation regarding Brazilian stocks to "overweight" its portfolio in Latin America and have forecast that the index would reach 105,000 by the end of the year. year.
Sixty of the 65 stocks included in the index rose on Monday, and many posted double-digit gains. The losses were concentrated in export-oriented companies such as wood pulp producer Suzano Papel e Celulose SA (SUZB3.SA), who would suffer from a stronger currency.
Report by Bruno Federowski in Brasilia and Paula Laier in São Paulo; Additional report by Marc Jones in London; Written by Bruno Federowski; Edited by Brad Haynes and Jeffrey Benkoe
