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By Nathan Chaudoin - October 8, 2018
More than a dozen candidates populated the field in the first round of the 2018 Brazilian presidential elections. But only the top two vote getters advance to a runoff election Oct. 28. Even in Brazil, where politics are often a combination of political gamesmanship and corruption, this campaign proved operatic. The leading candidate was jailed for corruption, his hand-picked successor is a philosopher and lawyer, and the leading vote-getter was hospitalized for a month of the campaign after a man stabbed him at a rally. The election is noteworthy for reasons beyond theatrics; the performance of Latin America’s largest economy hangs in the balance.
Far-right candidate Jair Bolsonaro received the most votes (46 percent) in the Oct. 7 presidential election. Because Bolsonaro did not receive a simple majority, he will face a runoff election on Oct. 28 against the runner-up, center-left candidate Fernando Haddad, who received 29 percent of the votes.
Bolsonaro, a former army paratrooper, was hospitalized for a month after a follower of a political opponent stabbed him in the abdomen. This helped galvanize Bolsonaro’s core supporters and swell his popularity despite coming from a relatively minor political party and having a tiny campaign budget. He has positioned himself as a tough-talking straight shooter, much in the populist style of U.S. President Donald Trump. After several corruption scandals among Brazil’s ruling parties, voters favored a candidate who has positioned himself a political outsider and a fresh voice.
During the campaign, Bolsonaro made incendiary remarks about marginalized groups and appeared to polarize the Brazilian electorate. But as election day approached, he toned down his rhetoric in an attempt to gain support among voters in the center of the political spectrum. This tactic appears to have worked. He gathered the most votes in all regions except the poorest states in Brazil’s northeast region.
His ultra-conservative campaign positions and fiery speeches had concerned financials markets, which viewed a victory for his far-right Partido Social Liberal (PSL) party as a negative for the already challenged Brazilian economy. But in his victory speech after the first round, he appeared to reach out to the center, as well as his base. This move, combined with campaign statements about planning a fiscally conservative economic agenda, appeared to calm the financial markets a bit. He also selected a University of Chicago-educated economist as his chief economic advisor, which suggested he would follow market-friendly policies while reducing fiscal spending.
Bolsonaro will face runner-up Fernando Haddad of the Worker’s Party (PT) in the runoff. Haddad, a lawyer, philosopher and former mayor of São Paulo, was the hand-picked replacement for former president Luiz Inácio Lula da Silva. Lula, as he’s known, was the front runner until a Brazilian court declared him ineligible due to his current 12-year jail term for bribery.
Bolsonaro is in a good position as he heads into the runoff. Not only were his first-round results much better than expected, but his PSL party also picked up seats in the country’s Congress. This could help him gain additional support as Bolsonaro’s own party becomes the second-largest represented in Congress, and he will be in a better position to get his message out. Leading up to the second round on Oct. 28, each candidate will have equal access to media time and free advertising. This is a luxury Bolsonaro did not have in the first round, a result of his small budget and his time off the campaign trail when he was hospitalized.
The Brazilian market responded positively to Bolsonaro’s strong showing. The Brazilian real appreciated and the stock market has also risen in anticipation of political stability after numerous corruption scandals. Also, investors appear pleased that, should he win again in the runoff election, Bolsonaro will implement his promised market-friendly economic agenda.
On Oct. 1, the U.S., Canada and Mexico reached an agreement to update the North American Free Trade Agreement, or NAFTA, to address issues that were unheard of in 1994. From autos to eggs, the pact affects an array of industries. Today Co-CIO Victor Zhang summarizes the changes.
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The opinions expressed are those of American Century Investments (or the portfolio manager) and are no guarantee of the future performance of any American Century Investments' portfolio. This material has been prepared for educational purposes only. It is not intended to provide, and should not be relied upon for, investment, accounting, legal or tax advice.