Brazilian stocks have become one of Wall Street's favorite destinations for investing this year as investors bet on big changes taking place in Latin America's largest economy.
The Bovespa index, Brazil's benchmark stock index, hit an all-time high on Monday and is up more than 8.5 percent thus far in 2019. The iShares MSCI Brazil ETF (EWZ), which tracks a basket of Brazilian stocks, has risen 12.2 percent this year. The EWZ is also outperforming EEM, the broader emerging-markets ETF, as well as funds tracking other emerging-market stocks.
The EWZ fund was up almost another 2 percent on Tuesday.
The jump in Brazilian shares comes as investors cheer the possibility of key reforms being passed by new President Jair Bolsonaro, including pension reform. However, Bolsonaro has a limited time period to make these changes. He is also a polarizing figure given racist and homophobic statements he has made in the past.
Bolsonaro is "hitting all the right notes the market has been wanting to hear for years," said Chen Zhao, chief global strategist at Alpine Macro. "That's why I think the market reaction has been so positive. If he really delivers on what he promised, I think that could turn out to be a major supply-side story in the EM world."
Brazil's new president was elected with overwhelming support. Bolsonaro won the presidency in October with 55 percent of the vote as Brazilians grew fed up with a spike in violence and lackluster economic recovery.
The Brazilian economy contracted all throughout 2016 on the heels of a massive price drop in oil, one of Brazil's biggest exports. U.S. crude futures briefly traded around $26 per barrel in early 2016 before rebounding; they traded above $51 on Monday. The economy turned around in 2017, but only grew by 1.1 percent. Quarterly GDP growth did not reach 1 percent in the first three quarters, FactSet data show.