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As the Brazilians prepare to vote in the second round of their presidential election on Sunday, Jair Bolsonaro is preparing to become president. The far-right candidate is leading the polls, but investors are worried that his victory could mean for the future of Brazil's indispensable reforms.
The Datafolha survey released last Thursday showed that Bolsonaro was leading with 56 percent, according to a Reuters report, compared to 44 percent of its rival, Fernando Haddad. Haddad was endorsed by former President Shame, Luiz Inácio Lula da Silva. The distance between the two candidates has narrowed recently.
Bolsonaro, who was wounded in a knife attack during the campaign, is known for his extreme rhetoric and notably promised to remove environmental protections and restrictions in the Amazon. Brazil is a major agricultural producer whose one of the largest exports is soybeans.
SF9, + 0.35%
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"A Bolsonaro victory in Sunday's election is fully charged [in], Writes Friday the chief currency operations strategist of RBC, Adam Cole, citing a 95% probability of victory predicted by the market. "After the elections, the markets will have to think about the real probability of reform, and there is plenty of room for disappointment, in our opinion."
Brazil has needed a reform of public finances, including its retirement system, for years and previous leaders have struggled with the problem for years. Now the question is forwarded to the next president – most likely Bolsonaro.
"While the market has responded positively to the first outcome, uncertainties remain as to the pace and scope of tax reforms (including social security reform) that can be implemented by the next administration in light of the lack of transparency. a large deficit the burden of debt and the heavy burden of mandatory spending, "wrote Shelly Shetty, senior director of sovereign states at Fitch Ratings, earlier this month.
In addition, Brazil is sensitive to rising interest rates in the United States, but also to the slowdown in the Chinese economy. Beijing has announced that its GDP growth in the third quarter was at its lowest since the big financial crisis of last week.
Must read: Hong Kong's former securities regulator said the economic growth rate released by China was a fiction
Look also: According to Mark Mobius, trade disputes with the United States pose a serious threat to the Chinese economy.
If fiscal and structural reforms disappoint investors, the US dollar could return to 4.20 against the Brazilian real
USDBRL, -1.7108%
, according to RBC. Friday, a dollar bought real 3.6430.
According to FactSet, the greenback rose about 10% against the real during the year, due to the strength of its US rival and the liquidation of emerging market assets, particularly in the second quarter.
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