Traders (Secretly) Love the Most Offensive Candidate in Brazil

(Bloomberg) -- The laughter and the applause could be heard all the way down the hall, where the press had been instructed to stay. Loud, spontaneous outbursts of glee that came in waves -- one after another -- over the course of 90 minutes.

Traders (Secretly) Love the Most Offensive Candidate in Brazil

The speaker: Jair Bolsonaro, the radical firebrand running for president in Brazil. The venue: BTG Pactual’s annual conference in the heart of the Sao Paulo financial district. Attending the lunchtime speech were some of the best and brightest from the country’s top financial firms. Currency traders and stock analysts and investment bankers.

Off the record, attendees beamed as they recalled how Bolsonaro’s biggest applause lines came from insults directed at the much despised former president, Dilma Rousseff, and promises to crack down on rampant crime in the slums. On the record, though, they said next to nothing. No one would publicly acknowledge they were pleased by the former army captain and his tough-guy speech.

Traders (Secretly) Love the Most Offensive Candidate in Brazil

It’s easy to understand why. Ever since he stepped onto the national stage last year, Bolsonaro has been a lightning rod of controversy. Among his more outlandish comments: that the birth of his only daughter among five kids was the result of “a moment of weakness”; that he’d “beat” men he found kissing; that the descendants of Brazilian slaves “do nothing” and “are not even good for breeding anymore”; and that the repressive military government that ruled Brazil through the 1980s wasn’t a dictatorship.

Nothing quite so outrageous was said that day in February at BTG. And, in fairness, it probably wouldn’t have gone over well with the audience if such comments had been made. But what’s undeniable is that Bolsonaro is luring in Brazilians of all socioeconomic classes by cutting an everyman image with his free-wheeling, politically incorrect style.

A little like what was so often heard during the 2016 U.S. campaign about Donald Trump, the refrain “he says what I’m thinking but can’t say” comes up time and time again when talking to everyone from currency traders to taxi drivers. This helps explain why Bolsonaro has forged a slim lead in polls over a wide-open field of candidates five months before the first round of voting.

“There are people that intend to support him but hide that,” said Lucas de Aragao, a partner at the political consultancy Arko Advice in Brasilia. “Not only in financial markets, but in all sectors.”

What’s curious about the warm reception Bolsonaro gets in investing circles is that it isn’t clear at all what his election would mean for markets. Bolsonaro often jokes about how little he knows about economics and insists that he will leave fiscal and financial policy decisions to his advisers.

One of those advisers is Paulo Guedes, a University of Chicago-trained economist who proposes privatizing government-owned companies and overhauling social security -- two moves seen as crucial to efforts to rein in the budget deficit and restore Brazil’s investment-grade credit rating following a protracted recession. Investors, of course, would love to see those policies pursued. But Bolsonaro himself has put forth much more unorthodox ideas, like banning Chinese companies from investing in the country and slashing benchmark interest rates to an unprecedented 2 percent, one-third the current level.

The mixed messages have created a degree of confusion among investors. Still, they seem inclined to embrace his candidacy in part out of their desire to latch onto someone they believe is capable of ensuring that the Workers’ Party doesn’t return to power less than three years after Rousseff was impeached. With the main star of the Workers’ Party, ex-President Luiz Inacio Lula da Silva, in jail and out of the race, there’s concern in markets that the party could throw its support behind another leftist candidate -- such as Fernando Haddad or Ciro Gomes -- and defeat Bolsonaro in the runoff round in October. Former Sao Paulo Governor Geraldo Alckmin is well regarded by traders, but has low levels of support.

“The level of uncertainty related to the path and outcome of this election is a lot greater than in the past,” JPMorgan Chase & Co. strategist Emy Shayo Cherman and economist Cassiana Fernandez wrote in a report to clients. “This time around it appears that there is more at stake regarding the country’s prospects than in past political cycles.”

Bolsonaro declined to comment on traders’ perceptions of him and his policies.

Brazilian financial assets have suffered from investor concern that whoever wins the wide-open vote won’t undertake the unpopular reforms needed to address a deep fiscal deficit that helped push credit-rating companies to label the country’s debt as high-risk. The real has posted one of the worst slumps in emerging markets since the end of the first quarter, sinking about 8.8 percent. Foreign holdings of local government debt fell to a six-year low of 11.8 percent as of March, compared with a record high of 21 percent in May 2015.

Traders (Secretly) Love the Most Offensive Candidate in Brazil

Bolsonaro’s path to politics began in the military. Born and raised in the city of Campinas in southeastern Brazil, he joined the army at a young age and rose to the rank of captain over a 17-year career. He first sought political office in 1988, winning a city council seat in Rio de Janeiro. Two years later, he won a post in the national congress and has never relinquished it.

And yet, despite all this time in a high-profile position, he only truly became a national figure when he announced his presidential candidacy. His team’s aggressive use of social media quickly won him attention as did, of course, all those controversial statements.

Some of those comments also earned him the attention of federal prosecutors, who have brought criminal charges against him for racist speech and inciting hatred. Bolsonaro’s press office said in a statement that the accusations were “groundless” and “sensationalist,” adding that the candidate has the right and duty to discuss uncomfortable topics.

Back at BTG that afternoon in February, few seemed too bothered by any of this.

They were enjoying themselves too much for that. One after another, almost without exception, they said they found him to be surprisingly reasonable and wildly funny -- a real showman. “He was good,” one of them said, “at entertaining the audience.”

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