Brazil's Debt 'Snowball' Won't Be Easy to Tame -- Barron's

By Craig Mellow Investors are betting that Flávio Bolsonaro, backed by a much more conservative Congress, can defuse Brazil's loudly ticking debt bomb and unleash a perennially cheap stock market. "A deeper and durable fiscal adjustment has become our base case," says Alejo Czerwonko, chief investment officer for emerging markets at UBS Global Wealth Management. The iShares MSCI Brazil exchange-traded fund jumped 12% after Flávio -- who goes by his first name to distinguish himself from his father, currently imprisoned ex-president Jair Bolsonaro -- romped to all but assured victory over incumbent Luiz Inácio Lula da Silva in first-round presidential elections Oct. 4. Yields on 10-year government bonds plummeted by 1.3 percentage points. Markets were also enthused by Flávio's Liberal Party nearly doubling its Senate seats and advancing in the Chamber of Deputies. "We saw a right-wing tsunami in Congress," says Roberto Simon, a Brazil-based fellow at the Stimson Center. A runoff election is set for Oct. 25. Equities could keep rallying to 30% above pre-election levels, Czerwonko.