Brazil’s General elections countdown is on …

The 2018 Brazilian electoral campaign has officially started on Aug 16 th . Two rounds for all gubernatorial, legislative and presidential elections will take place on Sunday Oct 7 th and on Oct 28 th . According to the most recent polls, from the thirteen registered aspirants the favorite candidate is by far ex-President Lula da Silva from the Worker’s Party (PT), currently in jail after being charged on corruption on the “Lava Jato” case in 2017. Second on the polls is Jair Bolsonaro, a conservative candidate with extreme views on human rights matters ; l agging far behind is centrist market-f riendly candidate Geraldo Alckmin. It is highly possible that Lula will be banned to run for presidency, leaving wide open the final scenario for the presidential race. Adding up to an already hectic and eventful month for EMs – following the Turkish turmoil and now the massive currency drop in Argentina - a rising climate of uncertainty lingering on the Brazilian political scene is weighing heavily on Brazilian assets and adding pressure into global emerging markets. O nly in August the Brazilian real (BRL) lost 10% of its value against the US dollar, having reached its lowest level since January 2016 at 4.16 on Aug 2 9 th . Down 20% vs. the US dollar ytd, it ranks as the third worst EM currency performer of the year behind the Argentinean peso (-45.2%) and the Turkish lira (-43.25%). Brazilian 5y CDS widened by 85 p in the month, up from 21 7 pts to 300pts, while the Bovespa Index has proved quite resilient despite heightened volatility. Up to $33bn deals are on hold as foreign companies await for signs on the possible presidential elections outcome. The key question for investors is whether the next elected President will manage to deliver the much needed and awaited fiscal adjustment policies to redress the domestic economic situation. The burden of the political factor in the Brazilian risk perception has proved to be historically high. Therefore, the evolution of the Brazilian electoral campaign over the coming weeks will be key for the domestic market and the Emerging Markets assets performance. Ready for a ride?