Brazil: Election result triggers rally, but runoff keeps uncertainty alive

An electoral surprise that moved markets

The first round of Brazil’s presidential election gave the country’s assets an immediate boost. Flávio Bolsonaro received 47.03% of the valid votes cast, compared with 45.16% for Luiz Inácio Lula da Silva, and both advanced to the runoff scheduled for October 25. The result exceeded the expectations of those who had anticipated a lead for Lula and made the senator the most-voted candidate in the first round.

The reaction was seen across different markets. According to La Tercera, the Ibovespa rose 7.85% and closed at 207,190 points, above the 200,000 mark. Clarín reported that the index topped 209,000 points during the session and was up 8.25% around 11 a.m. It also noted an appreciation of the real and a rise in the iShares MSCI Brazil ETF in pre-market trading in New York. Intraday prices and closing prices refer to different moments and should not be confused.

Investors’ interpretation: fiscal expectations

The move was not an assessment of measures already adopted, but a response to what market participants believe could happen if the government changes. Some investors consider Bolsonaro more supportive of fiscal consolidation and expect greater budget credibility to help reduce interest rates. By contrast, doubts about Lula’s willingness to curb spending had been a source of concern for some in the market, according to Clarín’s coverage.

Alejo Czerwonko of UBS argued that the result increased the likelihood of a change in government and a more constructive fiscal framework. He added that, in that scenario, Brazilian equities could benefit if fiscal credibility and interest rate prospects improve. This is an expectation contingent on political and economic developments, not a guaranteed consequence of the election result.

The gains were broad, though uneven. La Tercera reported advances by Petrobras and Vale, as well as rises in shares of Itaú Unibanco and Bradesco. The performance of these stocks shows that optimism reached companies in different sectors, but it does not mean all Brazilian companies will benefit equally or that the gains will last.

A rally exposed to the campaign and to corrections

The initial reaction did not eliminate uncertainty. The candidates still had to compete in the second round, and investors were awaiting more concrete signals about their proposals. Felipe Oyarzún, an XTB analyst quoted by La Tercera, warned that the initial response still reflected expectations and that attention would shift to the candidates’ economic signals.

Subsequent information from Valor indicates that the move was not linear: after the sharp rise the previous day, the Ibovespa began to fall, while gains in the exchange rate and movements in forward interest rates continued. That update does not, by itself, attribute the correction to a change in electoral prospects, but it serves as a reminder that a market rally can give way to adjustments even when some assets continue to advance.

For companies with exposure to Brazil, the reaction can affect the valuation of their assets and the conversion of local revenues when they report in another currency. However, the effect depends on each business, the trajectory of the real, and how policies are implemented after the election. The observed gains describe the market’s response on specific trading days: they do not guarantee better operating results, lower financing costs, or a sustained appreciation in asset values.