Bloomberg — The veteran emerging-market investor Mark Mobius is poised to put more money to work in Brazil should leftist leader Luiz Inacio Lula da Silva win the presidential election next month and take office in a peaceful transition.
It’s the latter of those two points that is the big question, because while Lula is well ahead in the polls, Mobius is concerned that incumbent President Jair Bolsonaro might contest the result in the sort of controversy that saw protesters storm the US Capitol on Jan. 6 last year.
And while traders say that isn’t in their base-case scenario, Mobius said in an interview that it’s enough of a tail risk to prevent him from boosting his current Brazilian exposure, which remained relatively unchanged in the past months. Bolsonaro, who has questioned Brazil’s computer-based vote counting system as former US President Donald Trump did, has pledged to accept the results “as long as the elections are clean.”
“If election goes well and Lula gets in, then we probably will look to add some of our holdings,” said Mobius, 86, who left Franklin Templeton Investments in 2018 to set up Mobius Capital Partners. “It’s not because of Lula only, but because there’s a stable transition of power and that’ll be good news.”
Local stocks might benefit from a potential peak in Brazil’s monetary tightening cycle and the fact that the nation is well positioned to gain from global supply-chain disruptions, according to Mobius. Even after the year-to-date rebound, the Ibovespa index is selling at about 6.5 times forward earnings, versus its 10-year historical average of 11.5 times, Bloomberg data show.
Brazil “is isolated from those problems in Europe” and “has a lot of the resources that people want,” said Mobius, adding that Lula is likely to foster consumer spending.
In the run-up to the vote, Mobius has been favoring software companies amid strong demand for their product, with Totvs SA being a top pick.
“The key, of course, will be the size of spending and how far he goes, but let’s remember the government can spend as long as the country is growing and productivity is going up,” he said. “That should not be a big issue if they’re able to continue to grow the country, and also if there’s good employment.”
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