Lula vs Bolsonaro: Does the financial market have a favorite candidate for the presidency?

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Luis Stuhlberger, something of a legend in the Brazilian financial market, manager of the fund that for two decades has been one of the most profitable in the country, said at an event on September 20 that, in the event of a victory, Luiz Inácio Lula da Silva (PT ) is unlikely to be radical, which would be positive for the market.

In the panel organized by the Brazilian stock exchange, B3, and Anbima (Brazilian Association of Financial and Capital Market Entities), to an audience of market executives, the manager stated that “a moderate nod from the PT”, in case of victory of the party, “is enough to bring more foreign investors” to the country, according to a report published by the Valor Investe portal, of the Valor Econômico newspaper.

The manager’s opinion may express a sentiment shared by his colleagues at Faria Lima, the region of São Paulo that concentrates a piece of the country’s capital and has become a symbol of the Brazilian financial market.

In the final stretch of the campaign for the first round of the presidential elections, it is rare to see endorsements coming “from Faria Lima” to the candidacy of former President Lula, who is ahead in the intention polls, with President Jair Bolsonaro (PL) in second place. But for some of the market sources heard by the report, this does not necessarily mean that there is a favorite candidate.

“I don’t think the market has a very clear preference, and I’ll be honest with you… this is not even my assessment, it’s an assessment when you look at asset prices”, says the chief economist of a manager who preferred not identify.

“This is the third election I’ve been in the market for and it’s the one where the election itself has cost less, oddly enough.”

“We are very close [do dia da eleição] and the market is relatively quiet. I remember that, in 2018, the stock market opened down 4% and closed the day 6% up — because at night there was a survey, in the middle of the day there was another one, Haddad, Bolsonaro, that madness. This is not happening.”

The BBC News Brasil report asked FGV (Getulio Vargas Foundation) professors Claudia Yoshinaga (FGV-EAESP) and Henrique Castro (FGV-EESP), owners of the Finance_Br profile on Instagram, to evaluate the behavior of two indicators that tend to fluctuate a lot. during the electoral period: the exchange rate and the Ibovespa index of the stock exchange.

Teachers gathered information on the volatility and rate of return of these two prices in all six elections of the 21st century, from 2002 onwards. And even though the comparison is not a perfect measure — since the price of the shares that make up the Ibovespa and the dollar are influenced by a series of factors — the results indicate that, in fact, the presidential elections in 2022 have not been a stress factor as they were in previous years.

Taking the annualized average of August and September, the Ibovespa’s volatility was the lowest between the analyzed periods —19.1%, against 36.6% in 2002, on the eve of Lula’s first victory, when the stock market rose and fell according to the the dissemination of polls for voting intentions.

The results of the analysis for the dollar are similar: 2002 was the electoral period in which the exchange rate fluctuated the most, with an average annualized volatility of 33.2% in the months of August and September.

Moving from volatility to returns, the analysis observed that, in this month of September (accumulated until the 22nd), the dollar fluctuated 0.2% down and the stock market rose 4.1%.

In the 2018 elections, in the same comparison, the dollar shrank 3.2% and the stock market rose less, 3.4%. The worst result, as in other comparisons, is from 2002: the dollar rose 25.4% and the stock market plummeted 18.6%.


Dollar and Ibovespa rate of return

Accumulated in September – in %

Year Dollar Ibovespa
2002 25.4 -18.6
2006 1.6 0.6
2010 -3.6 6.4
2014 9 -12.4
2018 -3.2 3.4
2022 -0.2 4.1

Due to the particularities of the 2018 election, the professors also analyzed the accumulated data for August and September — in this comparison, the Ibovespa return, which was 4.1% positive if only the month of September is taken, is practically zero. On August 5 of that year, experts recall, the PT made Lula’s candidacy for the presidency official with Haddad as vice president.

Although the TSE (Superior Electoral Court) declared on August 16 that Lula was ineligible, the PT only officially announced Haddad as head of the ticket on September 1. “All this turmoil and uncertainty made August 2018 a more turbulent period in the financial market,” they wrote.


Dollar and Ibovespa rate of return

Accumulated in August and September – in %

Year Dollar Ibovespa
2002 12.8 -12.4
2006 -.01 -1.7
2010 -3.7 2.8
2014 7.8 -3.1
2018 6.4 0.2
2022 -0.4 10

To the report, professor Claudia Yoshinaga commented that the behavior of prices in the market had been drawing attention in recent weeks. “We had already talked with other colleagues about this ‘tranquility’ one week before the elections.”

Bet on pragmatism

Part of this apparent indifference would be explained by the assessment that, if elected, Lula could look less at the ideologies of his party and more at practical issues.

“The PT’s history shows that, that there was pragmatism in the past – so it’s possible that we have in an eventual government”, says the chief economist of a bank who preferred not to be identified and who also believes, through the conversations she has had with investors, that the market does not have a “favorite candidate”.

In every year of the Lula government, from 2003 to 2010, the public sector recorded a primary surplus — that is, it collected more than it spent, taking into account only primary revenues and expenditures (which exclude public debt expenditures).

The government of President Dilma Rousseff maintained primary surpluses in the first three years, registering the first deficit in 2014. Since then, the primary accounts are “in the red” – that is, the country ends the year spending more than it collected in taxes, the which, as a result, increases public debt.

The Bolsonaro government delivered deficits in 2019, 2020 and 2021. With a positive surprise in revenue this year, in 2022 the country may register a surplus again, according to the projections of the IFI (Independent Fiscal Institution).

“The market does not fear at this moment that a lack of fiscal control would be inevitable. It is not. An example was the support of Henrique Meirelles [ex-presidente do Banco Central durante o governo Lula, de 2003 a 2011, e ex-ministro da Fazenda do governo Temer, de 2016 a 2018]. At the same time that he supported Lula, he commented, in an interview, that he supports the [de gastos]. He would like to see the ceiling maintained – which even goes against the candidate’s own speech, but shows that, yes, it is possible for us to seek this pragmatism”, she evaluates.

In his view, the market’s main focus is fiscal balance — a government that shows a commitment to controlling public spending and the debt trajectory. In this sense, “looking in a general way”, from the point of view of spending, the economist has a positive view of the current term.

“The government will deliver something like 18.5% of spending on GDP [Produto Interno Bruto], when it inherited spending on GDP of 20%. And we have important structural reforms, I think the main one was Social Security”, he says.

“The ceiling was inherited from the other government, but it also helps to control other expenses — the qualitative we can criticize a lot, but that’s the quantitative. What the market would like to see is the continuity of this control of expenses — so it’s not exactly which candidate, but any candidate who does this will be well regarded.”

The “qualitative” to which the economist refers and which has been criticized are the maneuvers used this election year to make the spending ceiling more flexible, such as the PEC dos Precatórios, and accommodate expenses above those allowed by the device approved by a constitutional amendment. in 2016.

The executive still sees the ceiling as a “fiscal anchor”, but some of her colleagues, on the other hand, believe it has lost its function.

“The Bolsonaro government was not the best government in the world in terms of the market. We started to dismantle the fiscal framework without putting anything in place, we had fiscal populism this year — and the sustainability of public accounts, given everything it gets more complicated”, says the manager’s chief economist mentioned at the beginning of this text.

“A major advance was obviously the Social Security reform, but it was a government that did not advance in administrative reform, which did not advance in tax reform…”

For him, in addition to signaling that Lula would be a president “more of the center” than is shown in the campaign, the market also reads that Congress, which tends to maintain a more conservative profile, would counterpoint an eventual more left-wing agenda, and that, whoever wins the election, the task of managing the economy “will be very difficult”.

The financial market on social networks

For those who browse social networks, however, the impression of the market’s positioning in these elections may be different. In some of the profiles of investment influencers with tens of thousands of followers, there are recent posts that question the election polls that put Lula ahead in voting intentions, that repeatedly criticize the PT and the left in general and praise the Minister of Economy. Bolsonaro, Paulo Guedes, and his management of the economy.

One of the economists who spoke on condition of anonymity to the report highlighted that the world of influencers can make noise, but it represents little of the money that actually circulates in the Brazilian financial market.

“Nobody ‘operates big’, nobody sets a price in the market, it’s people who live at the expense of the individual market… and when you look, that’s a giant Fla-Flu there — today is an election, tomorrow they find another reason to fight.”

Even so, the reach of these accounts is increasing: a recent survey by Anbima in partnership with the Brazilian Institute for Research and Data Analysis identified 612 profiles that talk about investments in social networks.

Together, they add up to a base of 91.5 million followers on Twitter, Instagram, Facebook and YouTube platforms — greater than the profiles of the ten largest press portals in the country, which account for 80.3 million, according to the survey. .

For Fabio Alperowitch, founding partner of Fama Investimentos, a manager focused on ESG (environmental, social and corporate governance) founded in 1993, the rejection expressed by investors in relation to Lula is explained by a combination of three factors.

One of them is the ideological positioning itself, which in the financial market, formed predominantly by upper-class white men, is more aligned with the right. “When a candidate of the opposing ideology is presented, the ideological question trumps many other debates — ideologies are discussed before proposals are discussed.”

A second component, for him, would be the “automatic” identification by these investors of the figure of Lula with the period of Dilma’s government, “which was really very bad for the economy”.

There is not often a “dissociation of what was the Lula government versus what the Dilma government was — it’s the PT government”, he comments.

The third point, he concludes, would be linked to the corruption allegations against the former president. “I will not enter that judgment [sobre as acusações em si]is not my place here, but there is clearly a ‘double standard’ (an expression that can be translated as ‘two weights and two measures’) in the way we look at it and how we don’t look, with the same ethical rigor, at others governments.”

“There is a market predisposition towards leftist governments that precedes any kind of objective analysis.”

This text was originally published here.

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