Fidelity International over verkiezingszege Bolsonaro in Brazilie

29 oktober 2018

Hierbij de reactie van Paul Greer, portefeuillebeheerder bij Fidelity International, op de verkiezingszege van Jair Bolsonaro als president van Brazilië:

Jair Bolsonaro easily won Brazil’s Presidential election run-off with a 55% to 45% margin over the PT party’s candidate Fernando Haddad. The result was largely expected with polls suggesting a large margin of victory for Bolsonaro for the last 3 weeks. This vote has been arguably the most divisive election in Brazil’s democratic history and has illustrated the deep polarisation of domestic politics in recent months. In a development comparable to many other countries around the world, this vote has illustrated the sharp decline of establishment politics in Brazil with traditional parties such as PMDB, PSDB and PT all struggling to connect with the nationwide population. Brazilian risk assets have enjoyed a strong rally over the last 2 months as the market has clearly been more comfortable with a Bolsonaro victory than a return of the PT party to power, which is understandable given Brazil’s recent history with President Dilma, excessive fiscal loosening and the sprawling Lava Jato corruption scandal.

Bolsonaro’s post-victory speech was market-friendly, with the new President hinting at an agenda focused on unifying the country, tackling corruption and focusing on much needed fiscal reform. This is encouraging and the recent rally for Brazilian risk assets is likely to continue in the near term as Bolsonaro will likely enjoy a brief honeymoon period in the early days of his new administration. The next key signposts to watch in Brazilian politics will be who is appointed in Bolsonaro’s cabinet, especially the speaker of the house, and who will be the next Governor of the Brazilian Central Bank if the current one if not re-appointed. The current speaker of the house, Rodrigo Maia, is one of the few candidates for that role who could bring all parties together to vote for fiscal reform. The leadership of the major state-owned companies like Petrobras and Electrobras will also be important to watch, as well as Bolsonaro’s plans to privatise state assets.

However, over the medium term we are bearish on Brazilian fundamentals and remain concerned about the trajectory of Brazil’s fiscal balances. We don’t believe in the likelihood of meaningful fiscal reform, especially pension, social security and tax reform, which is ultimately what Brazil needs to help keep further ratings downgrades at bay from the credit agencies in 2019. We feel the controversy and divisiveness of Bolsonaro’s political agenda, along with his high rejection rates, will prevent him from passing the necessary bills in congress. We expect Brazil to maintain its sub-potential growth, and for inflation to push higher in 2019, which will prompt the central bank to hike rates.