A record high for Brazil shares and a more than 2% gain in the Real, spurred by positive policy moves by the country's new government, helped Latin American markets make a strong start to the New Year and buck gloom in global markets on Wednesday.
Far-right President Jair Bolsonaro's administration took office on Tuesday and was quick to issue decrees affecting the economy, agriculture and society, while forging closer political ties with the United States.
”Focus (is) on the new administration in Brazil and there is a lot of expectation for some good change for the business side of the economy,” said Robert Lutts, president and chief investment officer at Cabot Wealth Management Inc.
Brazil shares surged as much as 4.1% to hit an all-time high before retreating slightly to close 3.6% higher. The real firmed 2.4% and posted its best day in more than seven months.
Markets welcomed reports that economy minister Paulo Guedes a market favorite, had drafted a temporary executive decree for a much needed reform of the country's bloated pension system that could save up to 50 billion Reais (US$ 12.9 billion) over the next decade.
However, strong opposition in congress is expected, emerging market analysts Dirk Willer and Kenneth Lam from Citigroup said in a note. The strategy is to roll out a package of changes which don't require congressional approval.
State-run power company Eletrobras was the top gainer on the Bovespa stock index, up more than 20%, after the government said it would carry out a partial privatization of the electricity generation company.
The MSCI index of Latin American shares rose 3.8%, hitting a one-month peak in the session as a 2.7% jump in Argentine shares and an over 1% rise in Mexico's IPC stock index added to its gains.
The Latam index outperformed the broader emerging markets as well the world stock indexes as concerns about slowing global growth were reinforced by weak Chinese and European data.