Venture: Cybersecurity
Issue 146;
Brazil’s election results on Sunday night were both unexpected and significant, a rare combination that led to a re-pricing of stocks, bonds and the Real. The Bovespa index rose by 7.7%, the Brazilian Real rose by 4%, and the 10-year yield dropped from 14.2% to 12.8% in a heartbeat. Our stocks Ultrapar Participacoes, XP and NU Holdings jumped sharply. XP managed a 31% rise on the day. Don’t you just love Mondays.
Brazil vs the World
Despite a currency that has nearly halved vs the dollar over two decades, Brazilian inflation-linked bonds have done very well, which is the outcome of 5.6% average real interest rates over the period. Another reminder how value works. The Brazilian stockmarket has matched the world, albeit following a very different path.
The election was between left-wing incumbent Lula, in his fourth term, presiding over high deficits and real interest rates, and Flavio Bolsonaro, the son of the imprisoned former prime minister Jair Bolsonaro. He is campaigning on fiscal discipline but is also embroiled in a scandal involving corruption at one of Brazil’s largest banks. Lula has also been imprisoned for corruption. The two offer very different diagnoses of Brazil’s problems and opportunities, and markets favour Bolsonaro’s approach.
In this first round of Presidential voting, Lula was expected to win. Instead, Bolsonaro claimed 47% of the vote to Lula’s 45%, as well as significant gains in their two parliamentary houses – the Senate and the Chamber of Deputies. As neither party received 50%, there will be a run-off vote between the two candidates on October 25. The remaining 8% of the vote went to right-wing candidates, suggesting most will add to Bolsonaro’s lead in the second round. Moreover, in Brazil, the candidate who led after the first round has never lost the second, since Brazil became a democracy in 1985.
Brazil is an interesting market and nice to see it reinvigorated.
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