Brazil stock market hits record high on Bolsonaro's potential reforms

SAO PAULO, Jan 4 (Reuters) - Brazil’s stock and currency markets have romped into the New Year, lifted by growing confidence in the still-to-be-detailed economic policies of newly inaugurated far-right Brazil President Jair Bolsonaro.

Investor euphoria about potential free market reforms and privatizations four days into Bolsonaro’s presidency has lifted the country’s benchmark Bovespa index close to 5 percent to an all-time high, making it the best performing among major indexes worldwide.

“The Brazilian market has started the year very strongly, with a generalized optimism about the new government outweighing global concerns about economic deceleration in the U.S. and China,” said Pablo Spyer, director of Sao Paulo-based brokerage Mirae.

Bolsonaro - a former congressman and army captain who has surrounded himself with a cadre of generals and orthodox economists - campaigned on free-market promises of cost-cutting and privatizations.

Stock market gains have been led by companies like state-controlled utility Eletrobras, which has jumped 26 percent over three sessions. Newly named Energy and Mines Minister Bento Albuquerque said he might issue new shares in the company, diluting the government’s stake to the point where it no longer controls the company.

Another big winner has been Sabesp, the water and sewage company for Brazil’s most affluent state, Sao Paulo. Its shares are up 20 percent, the Bovespa’s second-highest surge after the state’s top finance official, former central banker Henrique Meirelles, said he would evaluate the possibility of privatizing the company.

Meanwhile, Brazil’s real currency, up around 4.5 percent so far this year, is the second-best performing in the world. In 2018, the real weakened almost 15 percent.


Despite investor optimism, Bolsonaro has offered few details about his economic policies, beyond what he had already said on the campaign trail.

But a major challenge ahead for the new leader and his economics czar, University of Chicago-trained economist Paulo Guedes, will be pushing through an unpopular pension reform that economists say is crucial to reducing Brazil’s ballooning budget deficit, which hit almost $35 billion, or over 7 percent of GDP, in 2018.

Without that, any recent market gains might prove ephemeral.

Bolsonaro said on Friday at an Air Force event that he aimed to raise the age of retirement for men to 62 years old and to 57 for women, effective five years after any legislation is passed.

His chief of staff, Onyx Lorenzoni, later said those details might be reworked, however.

On Wednesday, Guedes said he was committed to the pension reform, to cutting taxes and was evaluating a wave of privatizations, but added few details.

Analysts with Brazil bank BTG Pactual wrote in a report timed with Bolsonaro’s inauguration that pension reform must happen soon.

The Bolsonaro administration “must submit to Congress, in its initial period in power, a thorough pension reform and push hard for approval,” they wrote. “This is no easy task and will require political coordination that the new administration may or may not have.” (Reporting by Marcelo Rochabrun Editing by Tom Brown)