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SAO PAULO – Stronger-than-expected support for Brazilian President Jair Bolsonaro in the first round of a presidential election could boost Brazilian financial markets on Monday, bankers and analysts said as the race led to an Oct. 30 runoff.
Bolsonaro’s left-wing challenger, former President Luiz Inácio Lula da Silva, missed out on victory in Sunday’s first round of voting. Lula’s 5 percentage point lead was narrower than most polls had indicated.
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The harsh outcome for Lula could force him to commit to more dovish economic policies, observers say, while spurring Bolsonaro’s campaign, which has promised reforms and privatizations that excite many investors.
“I think people will see reform as more likely and stocks could see a strong rally on Monday,” said Ricardo Lacerda, founder and CEO of investment bank BR Advisory Partners, adding that he thought Bolsonaro could take the lead.
Sergio Vale, chief economist at MB Associados, said he expected financial markets to cheer the prospect of a second-round vote, which “puts more focus on Lula and needs more negotiation in the coming weeks.”
He added that the strong performance of Bolsonaro’s congressional allies could also limit Lula’s room for dramatic policy changes when he returns to the presidency.
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JPMorgan analysts led by Emy Shayo Cherman suggested in a note to clients last week that a close race between Lula and Bolsonaro would boost markets.
“That opens up two possibilities: Lula gets more of a focus, may even have to specify who will be his Treasury Secretary, and Bolsonaro’s odds of winning are better than the poll averages.”
Gustavo Cruz, strategist at RB Investimentos, highlighted key stocks that may react to voting expectations.
The prospect of an outright victory for Lula in the first round has buoyed shares in for-profit education companies and homebuilders on bets that Lula would stimulus their sectors, as his Labor Party has done in the past.
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On the other hand, stronger opportunities for Bolsonaro could boost shares in state-controlled companies like Banco do Brasil SA and Petroleo Brasileiros SA (Petrobras). Both are candidates for possible privatization after Bolsonaro handed control of former state-owned electricity company Centrais Eletricas Brasileiras SA (Eletrobras) to investors.
However, Cruz said the hard-fought race showed that neither candidate would win a mandate for radical policies.
“Whoever wins doesn’t get a blank check from voters,” he said. (Reporting by Tatiana Bautzer, Andre Romani and Camila Moreira. Editing by Gerry Doyle Editing by Brad Haynes)
