Shares of steel giant Companhia Siderurgica Nacional (NYSE:SID) stock surged 11% on the first trading day of the New Year. Shares of Companhia de Saneamento Basico do Estado de Sao Paulo (NYSE:SBS) -- popularly known as SABESP, a water and waste management business -- did even better, closing up 12%. And Centrais Eletricas Brasileiras (NYSE:EBR), the utility company commonly known as Electrobras?
It did arguably best of all, closing the day 18.9% higher.
What do all three of these stocks have in common? They all call Brazil their home.
Yesterday -- a closed day for the market -- Bolsonaro was sworn in as Brazil's president, and in his inauguration speech promised to both "rescue Brazil from corruption" and "free Brazil" from socialism.
Bolsonaro is known for having controversial positions, but investors seem encouraged by his campaign promises to enact market-friendly reforms, overhaul Brazil's pension system, and privatize state-owned companies so they will become more focused on profit. As a result, Brazilian stocks like Companhia Siderurgica Nacional, SABESP, and Electrobras more highly today in response.
Granted, we heard many of these same promises from Argentine President Mauricio Macri when he was elected president of Brazil's neighbor a little over three years ago -- and that hasn't worked out very well at all for investors in Argentine stocks.
The proof, as they say, will be in the pudding. If Bolsonaro follows through on his promises -- which is to say if Brazil's legislature and street protestors permit him to follow through -- then the country's election of a new president could well turn out to be as good news for investors as today's stock action on Brazilian stocks suggests it might be.
On the other hand, even a president's best intentions can be waylaid by a bad economy, and up until just a week ago, that was the possibility that had investors worried -- the risk that the U.S. in particular, but also the world in general, could be headed for recession. As investor-friendly as the news out of Brazil sounds today, don't assume that stocks are out of the woods just yet. This story could yet take a turn for the worse.