Brazilian financial markets may experience a boost on Monday as a result of stronger-than-expected support for President Jair Bolsonaro in the first round of the country’s presidential election, according to bankers and analysts, as the contest advanced to a runoff on October 30.
Former President Luiz Inacio Lula da Silva, Bolsonaro’s left-leaning rival, came up short in the first round of voting on Sunday. Compared to what most polls had predicted, Lula’s lead of 5 percentage points was narrower.
According to observers, Lula’s difficult outcome may force him to commit to more moderate economic policies while energizing Bolsonaro’s campaign, which has promised reforms and privatizations that excite many investors.
Ricardo Lacerda, founder, and CEO of investment bank BR Advisory Partners (BRBI11.SA), predicted that reforms would be perceived as more likely and that Monday’s stock market rally might be significant. He also predicted that Bolsonaro might take the lead.
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The possibility of a second-round vote, which “brings Lula more to the center, having to negotiate more in coming weeks,” Sergio Vale, chief economist at MB Associados, predicted that financial markets would cheer.
He continued by saying that if Lula were to win the presidency again, his ability to enact significant policy changes may be constrained by Bolsonaro’s supporters’ strong showing in Congress.
In a note to clients last week, JPMorgan analysts led by Emy Shayo Cherman had warned that a close race between Lula and Bolsonaro would boost markets.
“It opens up two possibilities: Bolsonaro’s chances of winning are higher than the average of the polls indicated, and Lula moving more to the center and possibly having to declare who his finance minister will be.”
The key stocks that may react to expectations regarding the vote were highlighted by Gustavo Cruz, a strategist at RB Investimentos.
Based on bets that Lula would offer incentives for their sectors as his Workers Party has done in the past, for-profit education companies and homebuilders saw their shares rise in anticipation of an outright victory for Lula in the first round.
On the other hand, higher odds for Bolsonaro could increase the value of state-controlled businesses like Petroleo Brasileiros SA (Petrobras) and Banco do Brasil SA (BBAS3.SA) (PETR4.SA). Following Bolsonaro’s decision to give investors control of the formerly state-run electricity company Centrais Eletricas Brasileiras SA (Eletrobras) (ELET6.SA), both are potential candidates for privatization.
Cruz argued that the close race demonstrated that neither candidate is receiving support for extreme policies.
Whoever wins the election won’t have a free pass from the electorate, he said.
