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Brazilian ETFs Retreat as Uncertainty Follows Election of Jair Bolsonaro

This article was originally published on ETFTrends.com.

Brazilian voters went to the polls on Sunday and far-right candidate Jair Bolsonaro emerged as the victor, racking up 55% of the votes to win the presidency of the largest country in Latin America after beating out leftist Fernando Haddad. Bolsonaro's runoff-election victory came after the first round saw him take the early lead with a better-than-expected 46.7% of the votes, while Fernando Haddad came in second with 28.5%.

However, the real work begins for Bolsonaro who is inheriting a bevy of problems he must address during the course of his presidency and investors in Brazilian ETFs acknowledged what's ahead of him with uncertainty as the iShares MSCI Brazil Capped ETF (NYSEArca: EWZ ) , Direxion Daily MSCI Brazil Bull 3X ETF (BRZU) and VanEck Vectors Brazil Small-Cap ETF (BRF) retreated today after a week of gains ahead of the election. As of 2:00 p.m. ET, EWZ was down 0.45%, BRZU fell 1.70% and BRF slid 0.77%.

Of course, Bolsonario's biggest task is to help extract the country from its current economic doldrums. One of the more important items on his expansive task list will be pension reform.

"Now that Brazil has a new leader, the most important objective is now to get its country's finances in line," said Peter Boockvar, chief investment officer at Bleakley Advisory Group. "Pension reform was the initiative that [current President Michel] Temer was not able to pull off and hopefully Bolsonaro can get a fighting chance to do so."

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."

In the meantime, the economy will continue to be first and foremost on the minds of Brazilians 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 materialize in an improving economy, the country and Brazil-focused ETFs will both be beneficiaries.

U.S. President Donald Trump contacted Bolsonaro on Sunday to congratulate him on the presidential victory, which was followed up by a tweet, saying that, "We agreed that Brazil and the United States will work closely together on Trade, Military and everything else!”

Had a very good conversation with the newly elected President of Brazil, Jair Bolsonaro, who won his race by a substantial margin. We agreed that Brazil and the United States will work closely together on Trade, Military and everything else! Excellent call, wished him congrats!

— Donald J. Trump (@realDonaldTrump) October 29, 2018

Related: Brazil ETFs Breakout as Presidential Candidate Jair Bolsonaro Takes Lead

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