As with the rest of the “global reform wave,” the election of Jair Bolsonaro in Brazil would create uncertainty, and also opportunity. Here are investment implications, says Monty Guild Thursday. Find more global ideas in Monty's MoneyShow Dallas presentation here.

Back in April, we informed you about the rise of a formerly obscure Brazilian politician named Jair Bolsonaro. 

We wrote then: “In Brazil, Lula’s ignominious exit from the political stage opens room for his next-closest competitor in this year’s upcoming elections, a populist conservative firebrand named Jair Bolsonaro.  Bolsonaro has some views that resonate deeply with Brazil’s long-ignored fiscally and socially conservative majority (those who live primarily in the country’s vast, rural interior). 

“He also has also called for a return to law and order in Brazil’s crime-ridden metropolises -- and has raised concerns by remembering how well Brazil’s military dictatorship tackled such problems. 

“Bolsonaro has 4.8 million Facebook followers, far outstripping his rivals, leads among 18-to-25-year-old voters, and is known for a sense of humor that some find offensive and others think is merely tasteless. Despite his controversial status, he has the supreme advantage of being completely untainted by the ongoing corruption scandal.  (One social media ad reads, ‘Hitler?  Mussolini?  Well, there’s one thing they can’t call him -- corrupt.’)”

(We’d first heard about Bolsonaro from a Brazilian cab driver who praised his traditional values and said he was Brazil’s only hope for stopping the overwhelming crime wave that has become the despair of urban Brazilians.)

Since we wrote, Lula was taken out of the race as anticipated due to his corruption conviction, and Bolsonaro came very close to winning the first round of the vote outright -- even after being hospitalized during the last stage of the campaign following a knife attack at a rally. 

Markets responded very strongly. Although Bolsonaro is more a populist than a classical economic conservative, he has encouraged business by bringing Paulo Guedes onto his team as an economic advisor -- a Chicago-trained economist, investment banker, and hedge fund manager. 

If Bolsonaro wins -- as he is now expected to by most -- there may well be further upside, particularly for the Brazilian currency and for government bonds.

We’ll find out for sure after the final round of voting on October 28.

Investment implications:  As with the rest of the “global reform wave,” the election of Jair Bolsonaro in Brazil would create a lot of uncertainty, and also a lot of opportunity.

Bolsonaro’s history and credentials are those of a populist, but he is listening to advisors about whom Brazilian businesses are enthusiastic, and if his tough-on-crime policies worked, it would be immensely helpful to Brazil’s economic fortunes. 

Brazilian stocks and currencies have already moved, but we believe there could be more upside in the event of a Bolsonaro victory -- particularly for the Brazilian real (BRL) and for Brazilian government bonds.

View Monty Guild’s presentation, Global Stock Market Outlook 2018-2019 here.
Recorded: MoneyShow Dallas, Oct. 5, 2018.
Duration: 10:17.

Subscribe to Guild Management here.

Landon Whaley on investing in Brazil:

Trade Idea: Cry for Me Brazil says short EWZ. Part 1.

Trade Idea: Cry for Me Brazil says short EWZ. Part 2.