Brazil is preparing to go back to the future

The election campaign for the Brazilian parliament began on August 16. Left-wing former President Lula he is the favorite to regain power in the October 30 elections, but the race is clearly tightening. The slowed economy will benefit from less uncertainty around consumer and investment choices as it faces falling commodity prices and higher US interest rates. However, whoever wins will have to strengthen the fiscal position and implement economic reforms after the “lost decade” of stagnation in GDP. The combination of greater political visibility, peak interest rates and the cheapest stock valuations in the world is something that definitely sets this market apart.

READ: Bovespa - How to trade the Brazilian index? [Guide]

Elections in Brazil - October 2

On October 2, 156 million Brazilians will go to the polls, and if no one gets 50%. votes, overtime will take place on October 30. The choices are polarized; the competition is between the right-wing candidate Bolsonaro and the left-wing former president (2003-2011) Lula. Polls shrink as Bolsonaro builds up welfare programs and cuts fuel hikes, increasing the risk of the election being invalidated. Lula would have to lose, however, and thanks to the candidate for vice president of his choice, Alckmin, he strengthened his contacts with business and markets.

Brazilian stocks are extremely cheap

The Brazilian Real is the best performer this year compared to other currencies: up 9%. against the dollar and remains undervalued. It is one of the few countries with positive real interest rates. Brazil (EWZ) is also one of the few global stock markets to see growth this year. With a P / E below 9x and low earnings expectations, it remains the cheapest market in the world. The most important local stocks are Petrobras, Vale and Itau Bank. It is the 12th largest economy in the world, dominating the LatAm region, with a global influence of equities ranging from the American Mosaic to the Spanish Santander.

About the author

Ben Laidler - global markets strategist in eToro. Capital investment manager with 25 years of experience in the financial industry, incl. at JP Morgan, UBS and Rothschild, including over 10 years as the # 1 investment strategist in the Institutional Investor Survey. Ben was the CEO of the independent research firm Tower Hudson in London and previously Global Equity Strategist, Global Head of Sector Research and Head of Americas Research at HSBC in New York. He is a graduate of LSE and Cambridge University, and a member of the Institute of Investment Management & Research (AIIMR).