Bolso’s FinMin, Paulo Guedes and his team of “Chicago Boys” are very market-friendly and potentially transformative for the Brazilan economy. The question is does Bolsonaro have the political skills to see the reforms through?
The animal spirits of a new market-friendly government should boost the BOVESPA during the administration’s honeymoon. Brazil is our favorite stock market to start the year.
Probably the best way to play it is with the Country ETF, EWZ, with the buy trigger at break above the 50-day at $38.99, in our opinion. First upside target is $47.77. After the purchase, put in the first trailing stop at $36.20.
EWZ has been correcting after the almost 40 percent six-week runup into the election. The ETF could see a measured move to $47.77-$53.38 in a timeframe dependent on how global markets fare in January. Good risk reward with a potential 20-35 percent upside. Not a bad day at the office.
Caveat emptor: the medium-term political risk is elevated. Pension reform is a real political bitch, in all countries, and allegations of corruption continue to haunt even the Bolsonaro government. Moreover, Jair seems to have tied his future to President Trump, who is, at best, certain to have a rocky 2019.