Can Brazil’s bull market keep building steam?

With two months left to go, 2019 is already a year to remember for Brazilian investors. The country’s benchmark stock exchange index, Ibovespa, is about to stretch its bull market^[1] trend for a fourth-consecutive year—potentially reaching a growth rate in double digits. Plus, the Selic benchmark interest rate has dropped to record lows, making low-risk investments less attractive and pushing operators into variable income.

The only question is: will the party last?

Judging by the horizons set in October, analysts believe the economic tailwind for financial markets has every chance of being longlasting. 

One reason for this optimism is that after more than 20 years of debates, Congress has finally approved a reform to the country’s pension system. And while savings for the next decade are lower than ideal, it remains a solid and comprehensive overhaul, set to clear around BRL 800 billion in public spending for the next decade. More austere management of public accounts is one of the leading driving forces for the Central Bank’s decision to slash interest rates to 5 percent a year, signaling further cuts in December.

For companies, a healthier economy means less risk, cheaper credit, more foreign investment, and, ultimately, more profit. And all of this should reflect on these firms’ share prices. 

“This process has just begun. I reckon we can have at least ten years of sustained economic growth because Brazil is way behind the rest of the world, and that will reflect on financial markets,” says Pablo Spyer, a director at Mirae Asset. For Mr. Spyer, after the pension reform, there are important economic measures to bring investments for Brazil, such as privatizations and the tax reform, from which Brazilian listed companies are set to benefit. 

What is to come

One example of the expected influx of money is the newly announced USD 10 billion investment in Brazil by Saudi Arabia’s...