It's almost certain that many investors thought this Black October could end even worse in the financial markets. This was due to the results in Brazil, which determined that the radical candidate Jair Bolsonaro would be the new president of this emerging country last Sunday. These elections were creating a certain amount of uncertainty in the outlook for small and medium-sized investors, especially in Spain, given the strong ties of many companies listed on the Brazilian stock exchange.
Well, contrary to predictions, the Brazilian elections have given an unexpected boost to international stock markets. The main stock indices have reacted with moderate gains to the victory of the right-wing leader. These gains have been even higher in Brazil's Bovespa, which has seen an appreciation of nearly 3%, reflecting the positive reception of the election results. This buying pressure has been the first effect of this event, which has kept many small and medium-sized investors on edge.
The Bovespa is Brazil's main stock index and a key benchmark for Latin American investors. On Tuesday, it corrected after a particularly sharp upward rally. The Bovespa lost almost 3%, falling close to the 84.000-point level. This decline followed earlier trading that saw it climb to 88.000 points, a level not seen in recent days, driven by high trading volume, well above the average for October.
Elections in Brazil: Stock Market Rising
The predictions of some financial analysts that a presidential victory for the far-right candidate in Brazil would trigger significant declines in the stock market have certainly not come to pass. On the contrary, the Brazilian stock market has been one of the most profitable during this month of October, which is now drawing to a close. This performance has outperformed that of European stock exchanges, which have generally shown substantial losses.
On this point, it's worth noting that the Brazilian stock market followed one of investors' key strategies: selling on the news after having bought based on expectations of Sunday's results. All of this is happening while awaiting the outcome of the new government in this important geographical area. Furthermore, the sharp declines on Wall Street have influenced the performance of Brazilian equities.
Importance of the Rio de Janeiro stock market
The São Paulo Stock Exchange, or Bovespa, is the seventh largest and most important stock exchange in the world, and the first to hold this position in the Americas. Its importance stems from the fact that its index reflects the performance of the main securities traded on the São Paulo Stock Exchange . This index is notable for having undergone no methodological changes since its inception in 1968.
It had been on a very clear downward trend for many months as a consequence of serious divergences in the Brazilian economy. To the point that it has been one of the worst performing currencies in recent years. If you have invested money in this international market, you will have concluded that you have lost more money than expected since you began trading in this particularly important market. Issues of corruption, political uncertainty, and the devaluation of its local currency , the Brazilian real, have been some of its main common denominators during this period.
Effects on Spanish companies
One of the biggest beneficiaries of Jair Bolsonaro's electoral victory has been some of the companies listed on Spain's benchmark stock index, the Ibex 35. Santander, BBVA, Iberdrola, and Telefónica were among the top performers in the days leading up to the election, as financial markets anticipated a clear victory for the conservative candidate. This is due to the economic plan he intends to implement in Brazil to revitalize the economy, a plan based on privatizations that investors certainly find very appealing.
Within this general context, it is not surprising that some Spanish stocks have been among the biggest beneficiaries of this buying pressure in the financial markets. In this regard, it is worth noting that from the opening bell until after midday, Spanish companies with significant interests in Brazil maintained excellent share prices. This led to substantial gains on the stock market following Bolsonaro's victory in the South American country, outperforming the performance of companies without a presence in Brazil.
The Ibex 35 rises before the results
The impact of this political event was swift in the Spanish stock markets. Telefónica saw its shares rise by around 2%, exceeding the national average. Conversely, other stocks in the benchmark index of the Spanish stock exchange, such as Banco Santander, were approaching the estimated 3% gain at that precise moment, as were other listed companies like Mapfre and DÃa , and to a lesser extent, Iberdrola. This was considered a positive day for Spanish equities after a disastrous October.
On the other hand, many equity analysts believe that Bolsonaro's rise to power is being strongly priced into the stock market, given the lack of major macroeconomic data releases. This has helped other stock exchanges around the world join this unusual buying trend by small and medium-sized investors. Indeed, the Brazilian stock market could become one of the biggest positive surprises from this point forward. It's worth remembering, however, that it has been one of the hardest hit in recent years.
Investment strategies
In any case, if you intend to enter this international financial market, you must be very careful because it is one of the most volatile in the world. The difference between its highest and lowest prices in a single trading session is very large, certainly more so than in European markets. In other words, you have the potential to make a lot of money trading, but for the same reason, you can also lose it all in a very short period of time.
It's also worth noting that you can invest in the Brazilian market through other financial products unrelated to buying and selling shares on the stock exchange. One such investment option is equity funds , specifically those whose portfolios are based on equities. You'll certainly have no trouble satisfying this particular interest, as asset managers cover this region with a variety of investment funds.
Other financial products
Funds aren't the only products you can use to invest in Brazil. ETFs based on this market also achieve this goal, albeit with a significantly different strategy. ETFs are a hybrid of buying and selling shares on the stock exchange and traditional investment funds, with the advantage of offering more competitive fees than other investment options. However, they are designed for shorter investment periods. Nevertheless, they represent another alternative for investing in Brazil.
Derivatives or warrats also admit this possibility, although from much more aggressive positions in the models previously exposed in this article. Where you can generate large capital gains if you know how to operate with them, but also leave many euros on the way if the expectations created in the end are met. Their risks are notably higher and require a greater knowledge of the financial markets. This is one of the most relevant reasons why you should not compromise with them if you do not want to have problems from now on. In any case, you will not lack opportunities to be present in the financial markets of one of the most powerful emerging countries in the world. Beyond other technical considerations and maybe even fundamental ones.