The main benchmark (Bovespa) bounced back 44.965 points back in April to an astonishing 56.966 points in the last trading session on July 18, driven mostly by the higher expectations of a shift in power in the Latin American country. The very simple message to investors: read the newspapers and follow the polls before putting your money into stocks, especially those that might be hugely affected by the electoral outcome.
I look forward to seeing how the market responds to some of the characteristics ofBrazil's politicians. We have seen in the last months a growing expectation over the opposition candidate, Aecio Neves, whose campaign is gaining traction as a result of the dissatisfaction over higher prices and lower growth prospects. That said, how are players expected to behave in the face of scandals making daily headlines?
Candidates are likely to point their fingers at each other in order to win the electoral race in September, which will lead to headlines that will distract people instead of allowing them to focus on productive debates. The big question? How will the market behave in the face of accusations among the contenders? How to measure the political gains or damages on the campaigns? To which, there are no clear answers.
Investors are eager to see changes in the way the Brazilian economy is run, so that anything that hurts president Rousseff's aim of remaining in power is welcomed by market participants. That’s the common sense that accounts for the recent moves to the upside by some Brazilian stocks like state oil company, Petrobras (NYSE:PBR). And of course, there is the geopolitical component to consider.
The conflict in the Middle East -- which worsens as time goes by -- and Europe and the United States moving toward tighter sanctions against Russia in the face of the downed civilian jetliner, are likely to lead oil prices up world wide. Such movement, in macroeconomic terms, will benefit Petrobras, whose shares tend to go up as a consequence of higher earnings prospects.
Finally, of the many variables driving Brazil's markets, the most important is the political factor. Certainly, most players are eager to see the Party of Workers step down from power. However, geopolitics might play a major role in strengthening the optimism by leading prices even higher.
As a consequence of a more stable environment with less volatility led by politics, the new government will find the proper conditions to implement economic change and, more specifically, change in the how state companies are run.
Artur Salles Lisboa de Oliveira.