By Marcela Ayres

BRASILIA (Reuters). BRASILIA (Reuters). A Canadian research note naming Luiz Inacio Lula Silva, ex-president of Brazil, a “savior” for the country’s slowing economy has sparked debate within financial markets. This is despite foreign investors becoming more bullish in their pursuit of a return of this left-wing leader.

BCA Research’s analysts raised the recommendation to Brazil on Brazilian equity and sovereign debt to “overweight”, in a published note this week. The decision was made based on rising odds of Lula being elected president in October.

In a note entitled “Is Lula Brazil the Savior?”, the BCA analysts led by Arthur Budaghyan, Chief Emerging Markets Strategy, wrote that “Lula’s current policies and his agenda after the election will provide a positive impetus for financial markets.”

These developments come as foreign capital flows to Brazilian financial markets are at an all-time high of $9.5 trillion. This has helped boost the local currency by 7% against USD, as well as a benchmark stock index that rose 8%.

Many of this belief has been fueled by global investors’ conviction that Lula, who holds a two-digit advantage over Jair Bolsonaro, right-wing president, in recent opinion polls will be pragmatic about policy. This was highlighted last week at an event where prominent Brazilian hedge-fund managers spoke out.

Bolsonaro has been criticized by domestic investors for failing to deliver on his reform promises. However, many foreign investors are able to take heart in the conservative economic policies Lula used in his early years of presidency 2003-2010.

The international reputation of the leading candidate has been positive. Gabriel Galipolo (ex-CEO of Banco Fator, managing partner at Galipolo Consultancy) said that he was not unheard of and is an experienced candidate.

He noted that Brazil has been one of several emerging countries lifted by the shift in investors away from U.S.-tech sector, and towards high yielding assets. As the central bank fights inflation vigorously in Brazil, interest rates in Brazil have also reached double-digits. This has attracted more financial flows.

According to another chief economist of a Brazilian bank, Lula’s suggestions for re-igniting growth through public investments and generous social programs could even prove beneficial to the economy.

Recently, policymaking under Bolsonaro was tangled between an economy minister who is committed to fiscal discipline and allies from Congress that are eager to spend money on pork barrel projects. Lula, on the other hand has been a skilled negotiator at Congress.

The economist requested anonymity in order to keep political backlash at bay.

Even the most optimist investors are aware of the challenges that will be faced in stabilizing the public debt level, currently at 80.3% gross domestic product.

According to analysts at BCA, clients can expect Lula’s government to attempt “inflate itself out of debt” in the long-term. The long-term strategy we have for Brazil remains the same: Long stocks, but hedge currency risk.