Lula or Bolsonaro: Wall Street braces for two wildly different results in Brazil election
With the first round of Brazil's presidential election taking place Sunday, Wall Street is gearing up with starkly different market predictions.
TL;DR
- Wall Street has divergent market predictions for Brazil's presidential election, hinging on the outcome between Lula and Bolsonaro.
- A Bolsonaro victory is favored by markets due to his promises of fiscal discipline, which are seen as necessary for Brazil's economy.
- JPMorgan notes that Brazilian stocks have risen with Bolsonaro's poll numbers, and a "robust reform agenda" under him could lead to significant market upside.
- If Bolsonaro wins, JPMorgan analysts project potential upside for the MSCI Brazil between 21% and 41%, with interest rates declining and the currency strengthening.
- A Lula victory is predicted by JPMorgan to lead to the USD/BRL moving to 5.50, while a Bolsonaro win could see it move to 4.90.
- The composition of the legislative bodies also being decided in the election is a key factor for the ability to achieve reforms.
- Other risks for emerging markets like Brazil include rising global interest rates and potential crop damage from El Niño.