Brazil ETFs Post Gains After Lula Victory

November 02, 2022

Brazil-focused exchange-traded funds have risen following the election of a new president last weekend, as investors expect stability in South America’s biggest economy despite protests and the deposed incumbent’s having not yet conceded publicly. 

Brazil’s real gained more than 2% against the dollar on Monday after leftist former president Luiz Inacio Lula da Silva beat conservative incumbent Jair Bolsonaro in Sunday’s runoff. The Bovespa stock index was up 1.3% and the MSCI Brazil Index up 4%. The Bovespa, Brazil’s benchmark stock index, has gained 12% this year, despite the politically volatile environment in the country. 

Top Brazil ETFs showed similar gains, with the Franklin FTSE Brazil ETF (FLBR), which is managed by Franklin Templeton and holds about $300 million in assets, gaining over 2% post-election. 

The largest Brazil-centric ETF in the U.S., the iShares MSCI Brazil ETF (EWZ), which is managed by BlackRock and has over $5.5 billion in assets, showed gains of 1.5% post-election. 

“Election uncertainties clouded short-term performance and Brazilian stocks fluctuated after Lula’s victory Sunday, but remain undervalued compared to equities in other emerging markets and even developed markets,” Dina Ting, head of global index portfolio management at Franklin Templeton, wrote in an email to ETF.com. 

Lula—who served two presidential terms from 2003 to 2010—and his Worker’s Party have supported policies such as higher education and helping low-income households, that boost public spending. His party’s proposals for the next term include similar plans, such as exempting low earners from income tax. 

Tense Political Situation

The country’s political situation was tense due to lack of a public response from Bolsonaro’s camp, and as his supporters blockaded roads. Investors also expressed concerns about who Lula would appoint for key positions, and how that would shape public spending.

Still, Ting said the transition will be smooth, without any abrupt changes to markets. 

“With [former] President Bolsonaro’s government indicating on Tuesday that it would comply with the transfer of power, some fears should now be eased,” she added. “The market may be further comforted should Lula select a cabinet that reflects a broad coalition to support his aims to unite a divided nation.” 

Ting also noted that irrespective of Lula’s appointments, investors will remain encouraged by Brazil’s long-term potential to perform as a major commodity exporter still benefiting from elevated commodity prices, favorable demographics and notably early central bank action to curb inflation. The country is either the biggest, or among the largest, exporters of sugar, coffee, beef, chicken, soybeans, iron and more. 

 

Contact Zoya Mirza at [email protected] 

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