Franklin FTSE Brazil ETF

FLBR

Valor de mercado US$ 699 mi

Budget deficits close to 10% of gross domestic product have pushed Brazil's central bank to maintain high interest rates.

Markets priced in a more disciplined fiscal path as Bolsonaro's lead came with strong conservative Senate and governor results. Rates should fall regardless of the winner, but how far depends on a credible fiscal plan.

Brazilian ETFs like EWZ and FLBR surged 12-13% after the pro-market election result, but I reiterate my hold rating. Short-term gains are driven by capital flows and euphoria, not structural improvements; Brazil's market remains fundamentally weak.

Markets are betting Flávio Bolsonaro can fix Brazil's balance sheet and rein in public spending. Translating political momentum into lasting economic reform will be a much harder task.

Flávio Bolsonaro took a surprise lead over Luiz Inácio Lula da Silva in the first round of Brazil's presidential election, making him the favorite to win the runoff which is to be held October 25. Brazil's real surged against the dollar in Sao Paulo Monday morning.

Flávio Bolsonaro and Luiz Inácio Lula da Silva will face off in a run-off on Oct. 25 for Brazil's presidency, after both received the most but neither a majority of the votes in a first round result on Sunday. Bolsonaro is now seen as the overwhelming favorite to win the presidency, following a better-than-expected performance for him in the first round compared to what polls expected before the result.

Right-wing senator Flávio Bolsonaro upset President Luiz Inácio Lula da Silva in the first round of Brazil's general election.

The Bovespa benchmark stock index gained more than 9% and the country's currency strengthened against the US dollar.

"The Brazil trade is: Does Lula win or does Bolsonaro win?" said one economist.

I maintain an optimistic outlook on Brazilian equities via the Franklin FTSE Brazil ETF ahead of the October 2024 presidential election. FLBR offers diversified exposure to Brazil, which faces heightened volatility due to fiscal concerns and a polarized, unpredictable election. The market expects an opposition victory, viewed as more likely to deliver fiscal adjustment, potentially unlocking a 23.5% upside if P/E multiples revert to pre-pandemic levels.