This article was originally published on ETFTrends.com.
Brazilian voters will head to the polls in less than a week to not only choose its new president, but also select the candidate who will hopefully help extract the country of its economic doldrums. In the meantime, the Direxion Daily MSCI Brazil Bull 3X ETF (BRZU) continued its upward trajectory today amid a volatile U.S. stock market, rising 6% as the Dow Jones Industrial Average languished with over a 100-point loss as of 2:45 p.m. ET.
The important presidential runoff election is slated to take place on October 28 after the first round of the election saw far-right presidential candidate Jair Bolsonaro take the early lead with a better-than-expected 46.7% of the votes, while Fernando Haddad came in second with 28.5%.
In order to fix Brazil's tenuous economic situation, Latin America economist Edward Glossop of Capital Economics says investors are looking for "pension reform and deep fiscal reform ... I think future governments will struggle to push this through because it's highly unpopular with the electorate. And also, the reform requires 3/5 majority in Congress and Brazil's Congress is massively fragmented."
Investor interest in Brazil as of late has been evident in the performance of BRZU, which has gained almost 70% within the past month, while the non-leveraged iShares MSCI Brazil Capped ETF (NYSEArca: EWZ) is up 21%. Compared to the Dow in the past month, both have been consistent outperformers as evidenced in the chart below:
With the run-off election looming towards the end of this month, the economy continues to be first and foremost on the minds of Brazilian voters as the country has been slow to recovery after it experienced its worst recession to date. Unemployment levels remain high with double-digit figures and the country is drowning in public debt--74% of Brazil's GDP.
While the annual GDP growth has posted positive gains as of late, it's still not at a level where economists are optimistic about the future growth prospects. The idea situation to address Brazil's current financial woes is to elect a president who is market-friendly to help stymie the issues by effecting policies that favor economic expansion and growth.
With a much-needed shock to its political system, Bolsnaro could be the solution that Brazil needs and if his policies, if elected, materialize in an improving economy, BRZU will benefit.
Regardless of the winner, the International Monetary Fund predicts that Brazil's economy will continue growth through 2018 and next year. Per an article from IG Markets, "When the International Monetary Fund (IMF) released its World Economic Outlook for 2018 and 2019, it renewed investor confidence in Brazil’s economic growth. The IMF predicted that Brazil’s economic outlook in 2018 would include 2.3% growth in GDP, with a further 2.5% growth in 2019."
If social media is an indicator as to who may win the election, then it appears that Bolsonaro has the upper hand with the election just around the corner. According to Bloomberg, the candidate's name is showing up on social media three times more often than Haddad.
Regardless of the result, it will be an election that BRZU investors and traders will be eyeing closely. BRZU seeks daily investment results equal to 300% of the daily performance of the MSCI Brazil 25/50 Index, which is designed to measure the performance of the large- and mid-capitalization segments of the Brazilian equity market, covering approximately 85% of the free float-adjusted market capitalization of Brazilian issuers.
Per an article in Global Finance, the likely victor of the election will have to face "unrealistic expectations for the new head of state to solve the interrelated problems of increasing public debt, low economic growth and a political environment unfavorable to reform."
For more trends on leveraged and inverse ETFs, visit the Leveraged & Inverse ETF Channel
- Slow and Steady Muni Bond ETFs Are Taking the Lead
- Tech Earnings: Alphabet, Microsoft, Twitter, Amazon Report This Week
- 3 Huge Money Mistakes To Avoid At All Costs
- What Credit Card Debt Can Tell You About Yourself
- Could We See $100 Oil Again? Yes, but Not for the Reason You Think