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Brazil ETFs Surge as Center Parties Back Geraldo Alckmin

This article was originally published on ETFTrends.com.

Brazilian stocks and Brazil ETFs were leading the charge Friday after several parties began to support center-right presidential candidate Geraldo Alckmin in the upcoming election.

The iShares MSCI Brazil Capped ETF (EWZ) rose 3.7% on Friday and broke back above its short-term resistance at the 50-day simple moving average. Meanwhile, the VanEck Vectors Brazil Small-Cap ETF (BRF) gained 4.1% and iShares MSCI Brazil Small-Cap ETF (EWZS) increased 5.4%.

Leaders of Brazilian center parties forming the so-called Centrão, which forms the coalition of DEM, PP, Solidariedade, PR, Avante, PRB and PHS, stated they will support Alckmin in this year's election in October, Folha de S.Paulo reports. The coalition would provide Alckmin with greater political reach and the best recognition through television advertisements.

If the parties officially announce the agreement, Alckmin would garner additional time to advertise on television during the presidential campaign - he would have almost 40% of the entire share in the upcoming campaign.

"Their support does not mean Alckmin will win, nor does it immediately affect his performance, but it brightens the outlook for investors and markets," said Alessandro Faganello, a trader at Advanced brokerage in São Paulo, told Reuters.

Why Investors Like Alckmin

Investors see Alckmin as a pro-reform and pro-market candidate. He is expected to stick to an agenda of privatization, dregulation and austerity, which the market considers critical to bringing back Brazil's investment-grade status.

After the recent sell in Brazil, the emerging market looks cheap in the run-up to the October elections.

"We see value in Brazil stocks," Emy Shayo, JPMorgan Chase & Co.’s head equity strategist for Latin America, told Bloomberg.

Despite the difficulty in predicting the next president, there are still constructive drivers that should benefit stocks over the next few months. For instance, J.P. Morgan expects Brazil to post the best corporate earnings growth in 2018 among Latin American peers. Additionally, a number of its industries are linked to commodities, which benefit from a weaker real currency.

For more information on the Brazilian markets, visit our Brazil category.