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Does Brazil's big vote mean bigger stakes? · UBS Trending

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  What if I told you that one
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  of the most important
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  elections of 2026 is not in the United States?
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  Brazil heads to the polls just weeks before Americans vote.
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  And investors may be underestimating the political
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  uncertainty, the opportunity and the similarities.
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  We're going to talk about that
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  and more right now on UBS trending.
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  Hi, everybody, and thank you for joining me.
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  I'm Anthony Pastore
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  and this is UBS Trending. Alejo Czerwonko who is the CIO
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  for the Emerging Markets here at UBS is back in the studio.
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  This time we're talking about Brazil.
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  And I mentioned it right in the beginning, Alejo.
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  And looking at the notes that you have and my own research,
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  there are some really strangely
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  uncanny similarities between what's going on in Brazil and the US
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  when it comes to their economy,
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  their fiscal debt and their elections.
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  Can you walk us through that?
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  Because I found it to be
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  quite eye opening to see so many similarities
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  between our two countries.
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  The similarities between the US and Brazil are wild.
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  Yeah, I cannot agree more.
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  These are both multitrillion dollar economies, right?
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  But they're both struggling with large deficits, fiscal
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  deficits, very large amounts of government debt
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  pressures on their interest rates as we speak,
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  both in Brazil and in, in the United States.
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  But consider this.
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  They are being led by 80 year old presidents,
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  and they both have very important elections just 30 days apart.
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  We all know the midterms in the US are coming up on November 3rd,
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  but October 4th is a big day for Brazil.
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  President.
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  Vice president
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  the entirety of the Chamber of Deputies, two thirds of the Senate
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  and every single
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  governor of any state in Brazil are being elected.
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  And, both matter for investors locally and globally.
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  So it really is a massively important election,
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  especially for Brazil.
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  But interestingly, so we have Lula, who is, president.
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  He's the current president. Sitting president.
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  Luiz Inacio Lula da Silva is his full name, but he goes by
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  President Lula. Correct.
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  And also former President Bolsonaro's son
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  is going to be running this time around against Lula.
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  He also has very similar political leanings to his father,
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  which is more conservative.
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  Lula is just the opposite.
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  So but but again, as you said, politically, some similarities.
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  They exist.
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  So talk about, to me
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  the importance of how close this election is.
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  And we have a chart up there that you and your team put together
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  that does indicate where we are right now, as far as how close
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  they are in the polls.
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  This election is incredibly competitive.
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  I think it's too close to call.
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  The environment is deeply, deeply polarized.
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  And as you reminded us, you've got a candidate from the left
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  and you've got a candidate from the right, and they don't seem
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  to overlap in just about any of their proposals.
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  Starting on the left, Lula, current president, 80 years old,
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  running his seventh presidential campaign.
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  So he knows a thing or two about how to campaign.
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  This would become his fourth term in office.
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  Incredible.
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  On the
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  right, you've got Flavio Bolsonaro.
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  This is the eldest son of JD
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  Bolsonaro, former president of Brazil.
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  Currently, Flavio is a senator in Brazil,
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  representing the state of Rio de Janeiro.
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  Those are, in a way, the candidates.
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  They are the most competitive candidates.
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  And if you look at the polls,
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  Lula appears to have an edge.
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  Now, should we trust polls?
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  As you know, Anthony, the last 15 years,
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  any time you kind of trusted polls, it didn't go.
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  That's correct. Yes.
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  And this numbers are within margin
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  of error of the service that were conducted
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  when you look at the hot topics, the economy,
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  public safety,
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  you realize that maybe Bolsonaro might have an edge.
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  I think that this is going to go down to the wire.
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  This is going to be define on a second round
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  towards the end of October,
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  and it's going to be defined by the slimmest of margins.
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  And let's not forget also just factually, that both of these men,
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  including the former president Bolsonaro,
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  or have all been involved
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  or been convicted of some kinds of crimes, corruption, bribery.
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  Current President Lula was in jail for 520 days
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  between April of 2018 and November of 2019.
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  We know that former president Bolsonaro is under house
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  arrest due to his health. He was in jail. They sent him home.
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  But also his son, who's running, has been
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  accused of corruption and bribery this year.
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  So there's it doesn't go without scandal
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  that we're going into this election
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  for these Brazilian voters who have to decide between
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  kind of not so great candidates,
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  when you think about their history
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  in the world of high criminality, etc..
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  It is factual to conclude that neither candidate
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  is, you know, a clean slate, right?
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  And they have their own baggage.
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  It's sort of a wash for both of them.
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  Like, well, we both have done some
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  pretty bad things.
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  Right. Exactly.
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  So let's then
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  so talk about the fiscal story,
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  because at the end of the day,
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  we also want to talk to our investors out there,
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  especially those who are interested
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  in investing in emerging markets.
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  What's the fiscal story
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  wise is that how does that play into the political story?
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  Is it more important at this point?
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  How should investors
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  be thinking about the fiscal story of Brazil,
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  given what we know with this election coming up.
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  I think it is certainly more important
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  the fiscal side of the equation than the political side.
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  Why do you say that?
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  The reason is that it will survive the political situation.
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  Whoever wins will need to tackle
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  unsustainable fiscal numbers, right?
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  No matter if Lula is in office
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  or if Bolsonaro is in office, their reality is harsh.
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  Reality deficit to GDP 10%, debt to GDP 80%
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  and quite some pressure on the yield curve of Brazil.
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  Once again, going back to the parallels this week, percent
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  reacting to pressures on the US yield curve.
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  Right, Scott.
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  The Senate coming out
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  and telling
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  everybody we're going to try to do some fiscal consolidation.
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  These are words
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  that could be coming out of the finance minister of Brazil.
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  So we're talking about very similar situations.
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  Yeah. And
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  in the US, no matter
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  where Democrats or Republicans win,
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  this is going to be a challenge.
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  Same in Brazil.
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  So highlighting that, eventually something will need to be done
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  because the fiscal numbers in Brazil are utterly unsustainable.
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  Wow.
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  And let's not forget,
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  and as you pointed out in a recent note,
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  that Brazil is a very important player in the world economy.
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  They supply products, they oil, agricultural goods,
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  rare earth minerals, aerospace products.
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  So it it's really important that whoever
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  is the next president needs to fix some of these problems.
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  Obviously, we know it doesn't happen overnight.
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  It does take some time.
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  And you have to be surrounded by the right people
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  to get you and guide you.
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  But it's really important that this turns around
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  for the country, Brazil,
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  because the rest of the world depends on them.
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  For a lot of goods.
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  That's right.
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  And I think for investors, it's
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  a story of maybe short term pain for long term gain.
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  Right.
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  As you highlighted, maybe if you're able as an investor
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  to close your eyes, reopen them in three years.
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  What you do know is Brazil produces stuff that the world needs.
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  Yeah, oil, grains,
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  rare earths, airplanes.
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  Right.
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  You are in search for more dependable
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  sources of this type of commodities and manufactured products.
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  Brazil can help.
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  As an investor, you also know that Brazil today is not expensive.
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  You can access this story
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  in equities at eight times earnings.
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  This is really depressed.
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  And in fixed income yields are 14%
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  plus very elevated risk premium right.
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  So you're already being compensated
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  for at least some of the uncertainty.
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  That's why if you're thinking three years out
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  I think Brazil is going to contribute nicely to your portfolio.
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  Now in the short term
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  there's a lot of uncertainty, political
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  uncertainty, fiscal uncertainty,
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  and things might need to get a little worse before
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  politicians are prompted to act. Right.
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  So once again, as an investor,
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  you get to have to be willing to tolerate
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  short term pain volatility.
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  But I think on the other end there's got to be some gain.
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  Right.
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  So would you consider Brazil
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  to be one of your top convictions within the E.M. space?
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  If not, what are right now maybe your top 2 or 3 countries
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  that you really think right now
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  investors should be taking advantage of?
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  Yes. Not.
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  Brazil is not one of them.
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  Has too much risk right now.
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  Right now, again,
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  if you're talking six months out, we're a little cautious, right?
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  You're talking 2 to 3 years out now we're talking right.
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  There's value. Right.
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  So that's when it comes to Brazil
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  taking a step back, looking at emerging markets for the majority
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  of investors, particularly those sitting in the US,
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  the first order of business is to gauge
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  whether you're appropriately allocated to emerging markets
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  at large.
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  Right. That's an asset class.
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  Do I have enough emerging market equities?
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  Do I have enough emerging market bonds?
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  First order of business.
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  Once you do that, you can start adding a little bit
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  salt and pepper. Right.
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  Which country specifically do I want to place.
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  You know more emphasis on.
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  And that's where, you know, we're emphasizing
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  parts of China, parts of India, Asia
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  in general and Latin America as a region.
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  Okay. Great. Alejo.
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  And I know you mentioned we, you know, we're in a week where
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  there's been a lot of attention being paid to treasuries,
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  particularly in developed markets like the US and Germany
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  where we're seeing yields on the long end, 30 year bonds,
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  at high levels we haven't seen for 19 years.
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  We're all emerging markets now.
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  That's right.
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  Exactly.
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  At 5.3% on a 30 year treasury.
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  It's not quite at 14%, but it's at high levels.
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  We haven't seen it.
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  So yes, there is some,
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  there are some overlaps here I think on the debt side anyway.
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  Thank you Alejo.
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  Really interesting
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  I know, you know, obviously after the election occurs,
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  there may be a runoff if, you know, it's if it's closely tied.
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  I know in Brazil it works differently that way.
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  So we'll have to get you back
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  and one of your monthly
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  to talk about the results
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  and what the, person that's going to be sitting,
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  you know, in office for them means for the country going forward.
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  And maybe we'll have a little bit better clarity on
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  how to think about this as an investment.
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  Sit tight until then. That's right. Exactly.
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  Not to mention our own elections here in the US.
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  Lots to focus on.
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  Thanks, Alejo. Good to see you.
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  Alejo Czerwonko from the Chief Investment Office.
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  Thank you very much for joining us, everybody.
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  There's a lot more information
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  from Alejo and the rest of the team
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  on our insights website at ubs.com/views.
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  Plus you can follow us on social media.
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  We're on LinkedIn and Facebook under the UBS heading.
• 11:13
  But on Instagram
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  you can follow UBS trending
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  lots of content there for you
• 11:17
  that you're not going to find anywhere else.
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  And as always,
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  if you do have any questions
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  about what Alejo and I spoke about or how emerging markets
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  can fit into your portfolio,
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  make sure you're chatting with your financial advisor.
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  Until next time. I'm Anthony Pastore.
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  Have a great rest of your day
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  and remember to keep your eyes on what's trending.
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  See you soon, everybody!