Today’s broad-based rally has provided a key lift for many top stocks in investors’ portfolios. That said, among the biggest gainers today is an intriguing group of stocks. Brazilian stocks in the iShares MSCI Brazil ETF (NYSEARCA:EWZ) such as Companhia de Saneamento (NYSE:SBS), Vale (NYSE:VALE) and Petrobras (NYSE:PBR) stock are up big. Petrobras is among the leading performers in this group. Currently, PBR stock is up more than 11% at the time of writing.
These moves in various Brazilian names appear to be closely tied to the ongoing election in Brazil. What’s being called a “surprise runoff” between right-leaning current President Jair Bolsonaro and left-wing candidate Lula da Silva has provided equities with a boost.
That’s because political commentators and analysts generally believe that more right-leaning seats in Brazil’s congress could mean less tax spending and reduced tax hikes.
Let’s dive into what investors are making of this news today.
Brazilian Election Boosts PBR Stock, Others in Risk-On Day
With the upcoming midterm elections in the U.S., this runoff in Brazil is getting a lot of attention. The extent to which Bolsonaro’s government will be able to retain seats in congress could inform regulatory action moving forward. While Brazil will likely get a left-leaning government, the number of seats occupied by Lula’s government matters. For Brazilian stocks, the bullish prospects a mixed congress could provide in terms of less taxation is obvious.
In the U.S., there’s still the possibility of a blue or red wave following the midterm elections. That said, the overwhelming odds are in favor of a split House and Senate, in which legislation will become very difficult to pass. Should this take hold, investors generally stand to benefit. That’s because any sort of tax hikes are likely to be met with significant resistance.
Thus, perhaps market participants in Brazilian stocks today are providing U.S. investors with a glimpse into the future. Regardless, it’s clear that politics are going to be watched much more closely in the coming months. This election is one of many that matter. Today, investors seem to like what they see.
On the date of publication, Chris MacDonald did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
