Brazilian stock market hits a record after Flávio Bolsonaro’s advance

Brazilian markets reacted strongly to the result of the first round of the presidential election. The Bovespa closed on Monday, October 5, at a record high of 206,911.89 points, after rising 7.7%, its biggest daily gain since March 2020, according to Reuters. The real also appreciated: it gained 4.1% against the dollar and traded at around five reais per dollar.

The rally came after right-wing candidate and senator Flávio Bolsonaro received 47% of the vote, ahead of President Luiz Inácio Lula da Silva, who secured around 45%. Neither candidate reached the majority needed to win in the first round: they will face each other in the runoff on October 25.

What encouraged the investor reaction

Bolsonaro’s result exceeded the forecasts of several polls, which had predicted a lead for Lula in the first round. It also coincided with gains by the senator’s allies in Congress. His Liberal Party increased its representation in the Senate from 15 to 28 seats and, according to projections cited by Reuters, could win 121 of the 513 seats in the Chamber of Deputies.

For some investors, that legislative support could make it easier to pass business-friendly measures, such as curbing public spending, privatizations, and tax cuts, if Bolsonaro wins the runoff. On Monday, shares in Magazine Luiza, Cosan, and B3 rose by more than 20%; Petrobras gained just over 8% and Bradesco more than 13%. The U.S.-listed shares of brokerage XP also rose 33%.

Brazilian debt followed the same trend: the cost of insuring it against default fell, and the international bond maturing in 2056 rose 1.4 cents per dollar, to 93.5 cents, according to Tradeweb data cited by Reuters.

A rally tied to expectations, not an electoral outcome

The reaction reflects market bets on an unexpected result and the possibility of economic changes; it does not confirm that those measures will be implemented or guarantee that asset prices will continue to rise. The election remains undecided, and campaign proposals are not the same as approved policies. In addition, the path of the real and the stock market will depend on how the election unfolds and on other economic and financial factors.

Thierry Larose, a portfolio manager at Vontobel, said it remains to be seen whether Bolsonaro would be more fiscally responsible than Lula, although, in his view, markets might initially give him the benefit of the doubt. Bryan Harris, managing partner at Sabio, said investors would look for clear signs that the senator intends to address the country’s problems.

Reuters also reported bank forecasts of a possible further appreciation of the real. These are estimates subject to uncertainty, not guaranteed outcomes. The immediate data point is the movement following the first round; the next political milestone will be the October 25 runoff.