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Brazil faces political challenges and its future economic prospects

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Emerging-market investors, in particular, are preparing for a historic election in Brazil, a nation in the midst of its worst economic recession in decades. Following a historic corruption probe, the impeachment of former President Dilma Rousseff and the nomination of Michel Temer as her temporary successor, the newly elected leader will be a signpost for investors and markets, alike, as to the financial prospects of the country.

Brazilians are set to vote in a new leader, as well as a brand new Congress, with Partido da Social Democracia Brasileira candidate Geraldo Alckmin drawing comparisons to the US’ Hillary Clinton and far-right Partido Social Cristao candidate Jair Bolsonaro being dubbed the Donald Trump of Brazil.

Risk perception has improved in the nation, with financial market investors portending that a moderate, market-friendly candidate will emerge victorious this October. Perhaps the greatest testament to this possibility is the increase of Brazil’s Ibovespa stock index by more than 12%, with investors’ confidence increasing in a post-recession 2018 Brazil.

According to a recent IMF Report on Regional Economic Outlook, investors have turned a critical eye toward what are known as the South American Southern Cone economies of Argentina, Bolivia, Uruguay, Paraguay and Chile, which have high export exposures to Brazil, in comparison to the Andean countries such as Ecuador, Colombia, Peru, and Venezuela with limited connections, trade-wise, to Brazil.