After being told for months that President Jair Bolsonaro had no chance at beating the recently-released-from-jail Luíz Inácio Lula da Silva (aka Lula), who spent time in the slammer for corruption, Brazilian markets rallied when Bolsonaro forced Lula to a runoff. Reuters reports:
Brazilian markets surged on Monday, as a stronger-than-expected performance by President Jair Bolsonaro and his congressional allies in the first round of a general election eased concerns about sharp changes in economic policy.
Brazil’s currency strengthened more than 4% against the dollar, while the benchmark Bovespa equities index (.BVSP) jumped 5.5%, its biggest one-day gain since April 2020. Several companies rallied over 10%, while preferred shares of state-run oil company Petrobras (PETR4.SA) closed 8% higher in Sao Paulo.
Bolsonaro’s leftist challenger, former President Luiz Inacio Lula da Silva, fell short of clinching victory in the first round of voting on Sunday. Lula finished ahead of Bolsonaro by 5 percentage points, far less than the 7-17 points advantage forecast by major pollsters.
Bolsonaro’s allies also had a strong showing in voting for Congress, limiting Lula’s room for dramatic policy changes if he does return to the presidency.
Marcos Casarin, chief Latin America economist at Oxford Economics, said the results for Lula’s Workers Party in the congressional elections suggested Lula “would have to form a wide coalition with his former opposition to be able to govern with stability.”
“We think this is as close as possible to a best-case scenario for investors,” wrote Casarin.
Some investors wagered that Bolsonaro, while not favored, could eke out a second-round win, allowing him to push forward pro-market reforms and privatizations.
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