In a run-off election at the end of this week, Brazil will decide whether the promising country will take further steps towards a developed, democratic industrial nation or slide into a conservative dictatorship. The latter already seems to have been predicted, because right-wing conservative populist Jair Bolsonaro was able to get 46 percent of the concerned population behind him in the presidential elections 1.

In contrast, the reaction of the financial markets to the situation is clear: The local leading index Ibovespa 2 began to rise in the run-up to the publication of the first surveys 3. On the day after the election on 8 October, the Brazilian stock exchange recorded the highest turnover in its history4. The Ibovespa rose by over 15 per cent in the first hours of trading .

In fact, the initial economic conditions are not bad. Brazil's foreign debt is comparatively low, the country is rich in natural resources. A new middle class is gradually ensuring more domestic consumption and growth in the service industry.

Bolsonaro's policy, however, is to lead Brazil back into the hands of the old conservative elite and hinder the rise of a middle class. In the meantime, doubts have probably arisen among market participants, and the steep rise in share prices after the election has almost evaporated in part in favour of high volatility (see chart). Is capitalism an instrument for preserving the distribution of wealth or a key driver of change and innovation?

MVIS Brazil Index

Source: MV Index Solutions, Data as of 30 September 2018.

About the Author:

Israel Minor-Bonilla serves as a Senior Index Specialist for MVIS indices globally. He is an index expert with 5 years of experience in index management and maintenance. With his broad index know-how, Israel possesses deep knowledge of MVIS operations and products. He holds an M.A. in Economics with a specialization in Finance from the University of Freiburg, Germany.

The article above is an opinion of the author and does not necessarily reflect the opinion of MV Index Solutions or its affiliates.

1Bloomberg: Bolsonaros wins the presidential pre-election