Brazilian assets set to jump after Bolsonaro tops first round
Brazilian stocks and the real were expected to rally Monday after Flávio Bolsonaro beat President Lula in the first round of voting. A Brazil fund traded in Japan jumped 7.6%. Analysts cited by Reuters expect gains of about 6% for stocks and 3% for the currency.
Investors cheered Brazil's election surprise before the country's markets even opened. Flávio Bolsonaro, a right-wing senator and son of former President Jair Bolsonaro, finished ahead of President Luiz Inácio Lula da Silva in Sunday's first round, sending the race to an Oct. 25 runoff.
Overnight, a Brazil-focused exchange-traded fund listed in Japan rose 7.6%, Moneycontrol reported, citing Reuters. Analysts quoted by Reuters expected Brazilian stocks to gain about 6% and the real to strengthen about 3% when trading opens in São Paulo. The Ibovespa, Brazil's main stock index, closed at 192,115 before the vote, The Rio Times reported.
Why the excitement? Many investors expect a Bolsonaro government to rein in spending and push for business-friendly changes. Lula's government has spent heavily on social programs, and markets have worried about Brazil's rising debt. Brazil's central bank has kept interest rates high to fight inflation.
The rally is a bet, not a sure thing. Lula is still in the race, and the runoff is three weeks away. If polls tighten, markets could swing back. In 2022, Lula narrowly beat Jair Bolsonaro in a runoff by less than 2 points.
Brazil matters for global investors. It is Latin America's largest economy and a top exporter of soybeans, iron ore, coffee and oil. Shares of big Brazilian companies such as Petrobras and Vale also trade in New York, so U.S. investors may feel the move.
Political risk has shaped Brazilian markets for years. The real lost value after past elections and scandals, and investors watch every poll during runoff season.
For Brazilians, a stronger real can make imports and foreign travel cheaper, but it can hurt exporters.
What we know: Investors expected Brazilian stocks and the real to rally Monday.
What we don't: How long the rally lasts as the Oct. 25 runoff nears.
Where outlets agree Moneycontrol and The Rio Times both report that Brazilian assets were expected to rally Monday after Bolsonaro outperformed polls.
Where they differ Investors see a Bolsonaro win as good for budgets and business, while Lula's supporters say his social spending protects poorer Brazilians.