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Jair Bolsonaro won Brazil’s presidential elections on Sunday October 28, 2018. The U.S. ETF Investment Strategy team explains the implications of the outcome.

Key points

  • Far-right populist Jair Bolsonaro has decisively won Brazil’s presidential election, heralding big changes for Latin America’s largest economy.
  • Bolsonaro’s economic team is perceived to be market-friendly, and favors reducing the size of Brazil’s government.
  • Brazilian assets had rallied ahead of the results. Further gains will hinge on the new government’s ability to implement reforms.


Far-right candidate Jair Bolsonaro has decisively won Brazil’s presidential election, gaining popular support for his plans to push on with economic reforms and restore law and order in Latin America’s largest economy. Bolsonaro’s win reflects the rise of anti-establishment politics globally – and comes on the heels of Andrés Manuel López Obrador’s victory in Mexico’s presidential election earlier in the year.

The Brazilian economy remains in a fragile state despite recovering from a 2015-2016 recession. Brazilian risk assets had rallied since Bolsonaro’s polling prospects started improving ahead of the first round of the election. Yet we see the decisive victory by Bolsonaro – widely perceived as more market friendly than his left-wing opponent Fernando Haddad – as largely priced in by financial markets. Further gains in Brazilian assets will hinge on the new government’s success in pressing ahead with economic reforms, particularly of Brazil’s bloated pension system, in our view.

Chart 1: 12 month equity and currency performance (Rebased to 100, 10/25/2017-10/24/2018)

Chart 1: 12 month equity and currency performance

Index performance is for illustrative purposes only. Index performance does not reflect any management fees, transaction costs or expenses. Indexes are unmanaged and one cannot invest directly in an index. Past performance does not guarantee future results. Index performance does not represent actual iShares Fund performance. For actual fund performance, please visit or
Sources: Bloomberg as of October 24, 2018. Return depicted is that of the MSCI Brazil Net Total Return USD Index, MSCI Brazil Net Total Return Local Index and Brazilian Real / US Dollar Cross.

Political landscape

Bolsonaro was a politically divisive figure during much of the campaign, but his economic team appears committed to building on the reform agenda put in place over the past two years. These reforms – which include spending curbs, privatizations and a loosening of labor market laws – have been seen as supporting a gradual economic recovery. Yet if Bolsonaro were to act in ways that damaged institutions, as some fear, this could pose longer-term risks to Brazil’s growth.

Bolsonaro has promised to tackle Brazil’s debt problem through pension reform, halving the number of government ministries, and extending privatization of state enterprises. A Bolsonaro administration would need congressional support to tackle such a reform agenda. Gaining such support will be no easy task given the 35 parties in Brazil’s political system, but Bolsonaro's party had a stronger than expected showing in this election, becoming the second-largest party in the lower house. Cabinet appointments will be a key signpost of Bolsonaro’s economic vision – in addition to a new central bank president. The Central Bank of Brazil has been holding rates at a record low of 6.5%, with room to tighten in the face of any inflation scares.

A growing debt burden, driven by massive social security obligations, is Brazil’s key challenge. We see broad support for reforming social security. The president of Brazil’s lower chamber has said he would bring a pension reform bill up for a vote if the new president-elect publicly supported it. A key focus for investors will be the net present value of fiscal savings from any future cuts to benefits.

Bolsonaro represents the right-wing Social Liberal Party and was seen as the favorite leading into the first-round election, where he captured the largest share of the vote. The populist and former military captain has tapped into widespread discontent with the status quo, but faced high individual disapproval levels due to his often provocative views. Haddad was the vice presidential candidate of popular (but jailed) politician Luiz Inácio Lula da Silva and replaced him on the round 1 ballot.

Investor positioning

U.S.-listed ETP flows into Brazilian equities turned negative in July as political uncertainty ahead of the election appeared to dent investor sentiment. This came after a series of strong net inflows in the first half of 2018 totaling over $900 million. Those inflows have been offset completely by over $1.2 billion of outflows since July, the largest chunk of which came in August – the most in the history of the category. Outflows continued but moderated significantly in September and October. (Source: Markit, calculated by BlackRock as of 10/24/18)

Chart 2: U.S.-listed ETPs with exposure to Latin America

Chart 2: U.S.-listed ETPs with exposure to Latin America

Source: Flow data sourced from Markit and calculated by BlackRock, October 24, 2018. ETP groupings and categories are determined by BlackRock.

The bottom line

Brazil’s longer-term prospects will depend on the new government’s progress in tackling Brazil’s debt dynamics. The conclusion of the Brazilian election marks the end of a string of contentious Latin American political matches. We remain risk-on and see the lifting of political clouds in emerging markets supporting the long-term case for EM assets.


Christopher Dhanraj
Head of iShares Investment Strategy
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