In 2019, Brazil is the best stock market in the world. Brazil is poised to become the best-performing market of the quarter, if not the first half of 2019. Based on the most passive transactions in the markets, the iShares MSCI Brazil beats the SPDR S & P 500, Russia, India, China, and Mexico, FTSE Europe, Japan and more. Brazil’s GDP growth is expected to reach 2.4 percent this year, compared with 1.3 percent last year. Brazil’s economic recovery will accelerate over the next two quarters.
President Bolsonaro’s Reforms – Key to Brazil’s Success
The positive business climate strengthened by the new administration of Bolsonaro has been attributed to be the reason. The positive evolution of politics and stock markets is largely due to the fact that the country is moving out of its detention model. Since Dilma Rousseff was dismissed and ousted by a trial in the Senate in August 2016, Brazil was headed by Michel Temer, vice president of Dilma, very refractory but very unpopular. His approval rate has never budged beyond 10%. He had passed a lot of reforms – spending ceilings, new union labor law, Petrobras reforms – but none of this has allowed Brazilian companies to resume their activities. With Temer gone and the first approval rating of Bolsonaro in the 60s, the general mood in Brazil is not really euphoric but rather described as a mixture of a sigh of relief and hope. There is also prevails a skeptical opinion that Brazil isn’t ready to suddenly grow up. In fact, the previous estimate of GDP for 2019 was 2.5%. They lowered it because an economic slowdown in China means fewer Brazilian soybeans and iron ore go there this year. Like Trump, Bolsonaro is hated by the usual suspects on the left, namely academics and students, together with most celebrities and journalists.
Enhanced Business Climate
An improvement in the business climate tends to translate into an increase in business investment. Increased business investment often results in new hires. The Brazilian labor market created 755,537 jobs between January and November, bringing the unemployment rate down to 11.6%. It’s still high, but it’s the lowest since July 2016. Stable inflation means that Brazilians also have more money in their pockets. Consumer sentiment ended the year at its highest level since 2013, a booming year for Brazil. Pension reform is the main obstacle for Bolsonaro. Public sector spending, mainly on the retirement of public sector workers, reduces the amount the government can use to work elsewhere, such as infrastructure. Unfortunately, and also not surprisingly, Bolsonaro and his government do not quite see the pension reform. A large part of its base is military. The military is one of the main beneficiaries of Brazil’s obsolete pension schemes. A lack of progress on this front will erode investor confidence, although most investors say they wait until the start of the second half before rethinking Brazil.
Bolsonaro’s Reputation On The Line
In the past, Bolsonaro has been accused of grossly offending women, sexual minorities and Afro-Brazilians and praised the Brazilian and Chilean military governments. After 28 years of service in Congress, Bolsonaro was dismissed as a marginal figure. It did not matter in 2018. An economic collapse, a wave of national crime and the worst corruption scandal in Brazilian history destroyed public confidence in the political establishment. Bolsonaro essentially crushed the rival candidate of the Workers Party, Fernando Haddad, with just over 55% of the vote. Investors are hoping that the assets and vast resources of the tropics will liberalize the Brazilian economy and reform its costly retirement system. It’s easier to mobilize public anger than to introduce effective reforms. Having said that, most analysts are predicting that 2019 could well turn out to be a rough year for Brazil. Although Bolsonaro started well, a lot more is expected from him.
2019 Status for the Stock Market
Until the army tanks roll in, as its opponents believed just four months ago, Brazil is on track to be the best-performing market this quarter, if not in the first half of 2019. According to the biggest, passive trades in the markets, the iShares MSCI Brazil is beating the SPDR S&P 500, Russia, India, China (duh), Mexico, FTSE Europe, Japan and the broader MSCI Emerging Markets Index.Fitch Solutions forecast Brazil’s GDP growth to hit 2.4% this year, up from 1.3% last year.Brazil’s economic recovery will pick up steam over the next couple of quarters, Fitch Solutions researchers wrote in a report published on Tuesday. They cited positive business sentiment bolstered by Bolsonaro’s new administration.
Most of positive movement in policy and in stock market is coming from the fact that the country is emerging from its holding pattern. Ever since Dilma Rousseff was impeached and later ousted in a Senate trial in August 2016, Brazil has been led by the reform-minded but highly unpopular Dilma vice president, Michel Temer. His approval rating never cracked 10%. He passed tons of reforms spending caps, a new union labor law, Petrobras reforms but none of that got Brazilian business going again. With Temer gone and Bolsonaro’s early approval rating in the 60s, the overall mood in Brazil is not exactly euphoric but better described as a mix of sigh-of-relief and wait-and-see. Fitch’s macro analysts don’t think Brazil is ready to grow like gangbusters all of a sudden. In fact, the previous estimate for 2019 GDP was 2.5%. They’ve lowered it because a Chinese economic slowdown means less Brazilian soy and iron ore going there this year.
An improvement in business sentiment tends to mean higher corporate investment. More corporate investment often translates into new hiring. Brazil’s labor market added 755,537 jobs between January and November, pushing the unemployment rate down to 11.6%. That’s still high, but it is the lowest it’s been since July 2016. Stable inflation means Brazilians also have more money in their pockets. Consumer sentiment ended the year at its highest level since 2013, which for Brazil was a Dilma-stimulus infused boom year.