Global stocks have taken a beating this month, but one surprising market has bucked the overall negative trend: Brazil.
Brazil's Bovespa index is up more than 8 percent in October. The iShares MSCI Brazil ETF (EWZ) — which tracks Brazilian shares — has skyrocketed more than 18 percent this month, its best pace since March 2016. Meanwhile, the iShares MSCI ACWI ETF (ACWI) — which tracks stocks from around the world — has plummeted nearly 9 percent in October, its worst month since May 2012.
The stark outperformance of Brazil's stock market came ahead of the second round of the country's presidential election. Far-right candidate Jair Bolsonaro emerged victorious over leftist Fernando Haddad.
The question now for markets is whether Bolsonaro's administration will be able to maintain those gains.
Analysts including Daniel Osorio, president at Andean Capital Advisors, cautioned that the stock rally and increased confidence in Brazil are not reflective of faith in Bolsonaro, but rather relief that the PT, Haddad's far-left Workers Party, will not once again take the reins of the world's eighth largest economy. "The market is sick and tired of the PT party presiding over Brazil," Osorio said.
Haddad became the Workers Party candidate after a court banned former President Luiz Inacio Lula da Silva from running again. Da Silva, better known as Lula, is serving a 12-year sentence for corruption.
Lula's government — along with that of Dilma Rousseff, his successor — led to a ballooning fiscal deficit and contributed to an unsustainable pension system, which surged from 3 percent of GDP in 2013 to 8 percent of GDP last year. Those two leaders also presided over the country's worst recession in its history. Unemployment has not yet recovered, still sitting at 12 percent as of September. Brazil's economic troubles, coupled with increasing crime and a record murder rate in 2017, have made Bolsonaro more appealing to the Brazilian electorate.