Jair Bolsonaro emerged victorious in Brazil's presidential election, an outcome that markets had largely priced in, according to Frederico Sampaio, chief investment officer, Franklin Templeton Emerging Markets Equity Brazil. He says Bolsonaro now has his work cut out for him in addressing an economic recession, closing a fiscal deficit and stamping out corruption.
The Brazilian stock market's rise after the first-round election results—even in the middle of a profit-taking environment in the US markets—reflected investors' optimism about a more market-friendly policy approach should Jair Bolsonaro be elected as president.
Now confirmed as the winner, Bolsonaro faces the task of turning Brazil's economy around and restoring confidence. Apparently, voters felt it was time for a dramatic change.
To voters, Bolsonaro's rival, Fernando Haddad, ultimately represented a continuation of prior policies that led to mismanagement of the economy, including a large fiscal deficit. While Haddad's Workers Party was linked to corruption scandals, Bolsonaro grew in popularity in part as a result of his anticorruption rhetoric.
The Brazilian people have expressed their wishes for change and reform by choosing Bolsonaro, whose Social Liberal Party was largely unknown before.
Bolsonaro gained some additional credence with his pick for finance minister, renowned liberal economist Paulo Guedes, who is a graduate of the University of Chicago. Guedes' speeches have been in line with a more pro-business, market-friendly approach. He has spoken about the need to privatize, aggressively reduce the fiscal deficit and improve efficiency of the economy.
That type of messaging is what the market wanted to hear, and Brazil's equity benchmark, the Ibovespa, began to rally when the polls started to indicate Bolsonaro was ahead.
这类消息正是市场所希望听到的，当民意调查显示博尔索纳罗领先时，巴西股票基准股指 Ibovespa 开始反弹。
Looking forward, we think the local scenario should be extremely positive for earnings growth and for the Brazilian equity market generally. The new composition of Brazil's Congress—with conservative members gaining representation—should provide him a reasonable base to secure approval of the measures he pledged, including privatizations and reforms.
Now that the political uncertainty is settling, we think the risk of a U-turn in the actual conservative economic policy represented by the Workers Party, which had dominated Brazilian politics for many years, will be removed. We think there should be a more positive climate where consumer and business confidence can pick up again and lead to an acceleration in domestic economic activity.
The local market is trading at what we view as reasonable price-earnings levels and should have more scope for improvement as the economic situation improves, though much of the positive news has been priced in. After a recession which saw Brazil's gross domestic product (GDP) growth decline more than 3% in 2015 as well as in 2016, we think there is a large margin of spare capacity to accelerate growth without inflationary pressures.
当地市场正以我们认为合理的市盈率水平进行交易，随着经济形势的好转，应该会有更大的改善空间，尽管很多利好消息已在市场价格中有所体现。巴西二零一五年和二零一六年的国内生产总值（GDP）增长率下降 3% 以上，在经历这一经济衰退之后，我们认为在没有通胀压力的情况下，会有大量闲置产能加速增长。
When confidence is restored, we think there is a lot of room for upward GDP growth.
我们认为在信心恢复之后，巴西 GDP 会有很大的增长空间。
A Big Challenge for Brazil: Pension Reform
We see pension reform as the biggest challenge or economic worry for investors. Brazil has one of the most generous pension systems in the world, particularly for public employees, who can retire below the age of 60 and can collect nearly their end-of-career full salary. Outgoing President Michel Temer tried to pass reform, but didn't have the ideal political conditions to do so.
我们认为，养老金改革是投资者面临的最大挑战或经济担忧。巴西拥有世界上最慷慨的养老金体系之一，特别是对于公务员而言，可以在 60 岁之前退休，而且几乎可以领到职业生涯结束时的全薪。即将离任的总统特梅尔（Michel Temer）努力通过改革提案，但缺乏理想的政治条件。
Wages and pensions account for a large part of government spending, and pensions are adjusted by the minimum wage, leading to an increasing spending as a percentage of the country's GDP. So, the reality is that the retirement age probably has to be increased and the generous public employees' conditions should be revised.
工资和养老金占政府支出的很大一部分，养老金根据最低工资进行调整，导致支出增加，占巴西 GDP 的百分比持续高企。因此，现实情况便是，可能需要提高退休年龄，并对慷慨的公务员养老政策进行调整。
The market expects pension reform to pass under the next president. Bolsonaro has talked about this, but as they say, the devil is in the details, and for now, we don't have many. The good news is that the elections saw a larger contingency of his supporters represented both in governorships and in Congress, so he should have the ability to gain support to make changes. Brazil's parliament will now be more conservative than the prior one, which should help reforms pass, including more privatizations. Maybe not the state-owned oil company, Petrobras, but other smaller companies will likely be targets.
And as noted, Guedes has championed fighting the deficit, improving the efficiency of the state-owned companies and lowering corporate taxes.
Wider Global Implications
While the media has portrayed Bolsonaro as an extreme right-wing candidate because of some of his social policies, the left-wing Workers Party, which dominated Brazilian politics, was more aligned with dictatorships in Latin America, a policy dubbed “South-South Cooperation.” That policy didn't prove fruitful for Brazil.
Bolsonaro has stated a desire to visit Israel and the United States as his first two trips outside the country. He wants to increase trade, reduce import taxes and open up the economy. He wants to open up trade with the United States and with Europe, which is a contrast to prior administrations that lost out in terms of global trade as a result.
I'm optimistic about Brazil's prospects considering the state of the economy and the market, but we shall have to wait and see whether Bolsonaro's campaign promises actually become policy. He has not historically voted for conservative economic measures during his terms as congressman and hasn't been tested yet, so there is still some uncertainty. But in our view, Brazil has a lot of upside potential.
We will probably see a bit of a honeymoon phase until the end of the year as Bolsonaro lays out his plans and makes appointments. Next year, it's all about implementation, and we'll be watching.
The comments, opinions and analyses presented herein are for informational purposes only and should not be considered individual investment advice or recommendations to invest in any security or to adopt any investment strategy. Because market and economic conditions are subject to rapid change, comments, opinions and analyses are rendered as of the date of the posting and may change without notice. The material is not intended as a complete analysis of every material fact regarding any country, region, market, industry, investment or strategy.
Data from third-party sources may have been used in the preparation of this material and Franklin Templeton Investments (“FTI”) has not independently verified, validated or audited such data. FTI accepts no liability whatsoever for any loss arising from use of this information, and reliance upon the comments, opinions and analyses in the material is at the sole discretion of the user. Products, services and information may not be available in all jurisdictions and are offered by FTI affiliates and/or their distributors as local laws and regulations permit. Please consult your own professional adviser for further information on availability of products and services in your jurisdiction.
To get insights from Franklin Templeton delivered to your inbox, subscribe to the Investment Adventures in Emerging Markets blog.
有意从富兰克林邓普顿(Franklin Templeton)的邮件中了解更多信息，请订阅“新兴市场的投资冒险”(Investment Adventures in Emerging Markets)博客。
What Are the Risks?
All investments involve risks, including the possible loss of principal. Investments in foreign securities involve special risks including currency fluctuations, economic instability and political developments. Investments in emerging markets, of which frontier markets are a subset, involve heightened risks related to the same factors, in addition to those associated with these markets' smaller size, lesser liquidity and lack of established legal, political, business and social frameworks to support securities markets. Because these frameworks are typically even less developed in frontier markets, as well as various factors including the increased potential for extreme price volatility, illiquidity, trade barriers and exchange controls, the risks associated with emerging markets are magnified in frontier markets. Stock prices fluctuate, sometimes rapidly and dramatically, due to factors affecting individual companies, particular industries or sectors, or general market conditions.