Brazil markets’ Bolsonaro rally sends stock exchange to record high
SAO PAULO/BRASILIA -
asserted
rally → send → high
Brazil’s main stock exchange surged to a record high on Oct 5 as the country’s markets cheered on right-wing Senator Flavio Bolsonaro’s better-than-expected finish in the first round of the Oct 4 presidential election.
asserted
markets → surge → election
Brazil’s Bovespa index settled at 206,911.89 points, a new closing record, after a 7.7% jump, the largest since March 24, 2020.
asserted
index → settle → March
The eldest son of former right-wing president Jair Bolsonaro won 47% of the votes cast on Oct 4 and will face leftist incumbent President Luiz Inacio Lula da Silva, who secured about 45% of the vote, in a runoff on Oct 25.
asserted
who → win → Oct
Polls had forecast Lula would lead the first round of voting by around three percentage points.
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Lula → forecast → points
Investors cheered on Oct 5 as Bolsonaro’s strong showing was matched by gains for his allies in Congress.
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showing → cheer → Congress
Analysts say a friendlier legislature would make it easier for him, if elected, to push through a pro-business agenda of tighter public spending, privatizations and tax cuts.
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him → say → spending
In Washington, US President Donald Trump joined the celebration, calling his first-place finish a “very, very big victory” and predicting a close runoff.
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Trump → join → runoff
“Brazil wants change,” Bolsonaro said on on Oct 4, heralding the “end of the era of (Lula’s) Workers’ Party”.
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Bolsonaro → want → Party
Reuters reported on Oct 5 that Lula is considering tapping Vice-President Geraldo Alckmin to be his next finance minister if re-elected, in a bid to bolster the government’s fiscal credibility and win over centrist voters in the wake of Bolsonaro’s first-round success.
asserted
Lula → report → success
Retailer Magazine Luiza, conglomerate Cosan and stock exchange operator B3 were among the main gainers, with each jumping more than 20%, while oil company Petrobras rose just over 8% and lender Bradesco was up over 13%.
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Bradesco → jump → gainers
The benchmark index had its best daily performance since March 2020, when markets faced extreme volatility at the start of the Covid-19 pandemic.
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markets → have → pandemic
US-traded shares of Brazilian companies also soared, with brokerage XP up 33%, digital lender Nu Holdings up 13%, and fintech firms StoneCo and PagBank each up more than 20%.
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shares → trade → XP
The cost of buying insurance on Brazilian government debt through credit default swaps fell 20 basis points as traders bet on an improvement in the country’s finances.
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traders → buy → finances
J.P. Morgan upgraded Brazil’s equities to “overweight” on Oct 5, saying a more favourable political backdrop after recent election developments had improved the outlook for the region’s largest market and could drive a period of outperformance.
uncertain
backdrop → upgrade → outperformance
The Oct 4 vote sent the country’s currency strengthening 4.1% to around 5 per dollar, putting it on track for its biggest one-day gain in four years since the elder Bolsonaro performed better than expected against Lula in the first round of the 2022 election.
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Bolsonaro → send → election
He went on to lose to Lula in the second round of that election and was subsequently convicted of trying to carry out a coup to overturn the result.
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He → go → result
The former president was sentenced to about 27 years in prison and is currently under house arrest.
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president → sentence → arrest
Brazil’s international debt also rallied on Oct 5, while broader fixed-income markets were jittery.
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markets → rally → Oct
The 2056 bond was up 1.4 cents on the dollar to bid at 93.5 cents, Tradeweb data showed.
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data → bid → cents
‘The market wants change’
Bolsonaro has pitched himself as a “more centred” version of his father to investors concerned about Brazil’s burgeoning fiscal pressures.
“It remains to be seen whether the senator would ultimately prove more fiscally responsible than Lula would be in a fourth non-consecutive presidential term.
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Lula → want → term
However, markets are likely to give him the benefit of the doubt,” said Thierry Larose, portfolio manager at Vontobel.
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Larose → give → Vontobel
If he is elected, Bolsonaro would enjoy some room to maneuver with Congress after his Liberal Party emerged as the biggest winner in congressional races on Oct 4.
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Party → elect → Oct
His Liberal Party increased its representation in the Senate from 15 to 28 seats, the strongest result for a party since Brazil’s constitution was enacted in the late 1980s, following the country’s return to democracy.
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constitution → increase → democracy
It also is projected to secure 121 seats in the 513-seat lower house, up from its current 98 seats.
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It → project → seats
“The likelihood of advancing reforms is much greater,” said Pedro Paulo Silveira, an analyst at Terra Investimentos.
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Silveira → advance → Investimentos
He noted that during the previous Bolsonaro government, reforms often depended on costly political bargaining or stalled altogether.
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reforms → note → bargaining
Analysts also expect the real to continue strengthening into 2027.
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real → expect → 2027
Societe Generale forecast that it would move to 5.10 by the end of 2026, with scope to move below 5.00 in the first half of 2027.
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it → forecast → 2027
Morgan Stanley forecast the real could strengthen past 4.90 and toward 4.50 in the first quarter of next year.
uncertain
real → forecast → year
“The market wants change, it wants reform, it doesn’t want a high public deficit; with the current government, all of this will continue,” said Pedro Galdi, investment analyst at the AGF Investments platform.
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Galdi → want → platform
Bolsonaro’s strong showing is likely to boost market confidence in the near term, said Bryan Harris, a managing partner at Sabio.
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Harris → boost → Sabio
“The market will be looking for clear signals from Bolsonaro that he is serious about tackling the country’s problems,” Harris said.
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Harris → look → problems
Heading into the Oct 4 vote, most private polls, which largely underestimated the younger Bolsonaro’s strength, had shown the 45-year-old senator and Lula, who will turn 81 later this month, about even in a runoff vote. REUTERS
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who → head → REUTERS
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