Brazilian stocks surge as Flávio Bolsonaro leads first round with 47%

Brazil’s first-round presidential result reset how investors are pricing the race. Flávio Bolsonaro, the son of former president Jair Bolsonaro, took 47.03% of Sunday’s vote against 45.16% for incumbent Luiz Inácio Lula da Silva, according to Theguardian, and the two now advance to an Oct. 25 runoff.

Markets responded immediately. Cnbc reported the iShares MSCI Brazil ETF (EWZ) was up more than 12% on Monday, U.S.-listed shares of Itau Unibanco gained 15%, Banco Bradesco shares surged 19% and Brazil’s local Bovespa index rose 8%.

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The reported vote counts diverge slightly between the two outlets. Theguardian put Bolsonaro at 47.03% on 56.1 million votes and Lula at 45.16% on 53.8 million. Cnbc described Bolsonaro as having secured more than 47% of the votes and beating Lula’s first-round total by nearly 2 percentage points.

Key facts

• Prediction market Kalshi now gives Flávio Bolsonaro a more than 80% chance of winning the presidency, up from about 60% before Sunday, per Cnbc; Polymarket odds are at 85%, up from 63%.
• Lula’s deficit-to-GDP ratio was almost 10% in June, and Bolsonaro is campaigning on greater fiscal discipline.
• Bolsonaro’s Liberal party will hold the largest senate caucus with 28 of 81 seats, according to Theguardian, rising to 43 with other hard-right parties.
• Jair Bolsonaro, serving a 27-year sentence for plotting a coup after losing the 2022 election, saw four relatives elected to congress, Theguardian reported.
• Lula is seeking a fourth term after winning the presidency back in 2022 and defeating the then-incumbent Jair Bolsonaro.

Markets, polls and a reshuffled race

Before Sunday, polls had pointed to Bolsonaro trailing Lula in the first tally even while being favored to win a runoff — a gap the actual result overturned. Brazilian presidential elections send the two highest vote-getters to a second round when no one reaches a majority.

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Investors read Bolsonaro as the more market-friendly candidate. He has promised greater fiscal discipline, a contrast Cnbc framed against Brazil’s June deficit-to-GDP ratio of almost 10%. Lula’s campaign has tried to link Flávio Bolsonaro to his father’s attempts to contest the 2022 loss and to brand the son as corrupt; Bolsonaro has denied corruption allegations, according to Theguardian, which also noted his well-documented ties to members of Rio’s underworld.

The result reshaped other races. Bolsonarista candidates won generational and state contests, including Tarcísio de Freitas’s reelection as São Paulo governor and Sérgio Moro’s election as governor of Paraná. Pro-Lula senate candidates, including former environment minister Marina Silva, Benedita da Silva and Simone Tebet, lost, Theguardian reported. Right-wing presidential candidates eliminated in the first round — Ronaldo Caiado, Renan Santos and Romeu Zema — collected more than 5.5 million votes between them, with Zema pledging to vote against Lula’s Workers’ party and Santos declining to endorse either side.

Why it matters

A Bolsonaro win would put the Latin American country with the region’s largest economy under a government that investors have treated as more fiscally restrained, which is the read behind Monday’s equity rally. It would also mark a further expansion of the region’s conservative bloc, with allies including Argentina’s Javier Milei and Israel’s Benjamin Netanyahu already welcoming the first-round outcome, according to Theguardian. Control of the senate raises the prospect that pro-Bolsonaro legislators could approve an amnesty for Jair Bolsonaro, who is under house arrest in Brasília. For Lula, the path back is narrow: Theguardian noted that no first-round runner-up has won a Brazilian runoff since democracy returned in 1985.

What to watch

The runoff takes place on Oct. 25, less than three weeks after the first round, and the destination of the 33 million Brazilians who did not vote — a record, per Theguardian — will shape whether Lula can close the roughly two-point gap. Political scientist Camila Rocha has described voter apathy among those not aligned with Bolsonarismo as Lula’s central obstacle.

Odds shown on prediction markets are not guarantees, and Brazilian equities are volatile; nothing here is financial advice.

Written by

Benjamin

Benjamin Carter covers business, finance, and the stock market for StockPil, focusing on the trends and data that matter to everyday investors.

Sources: CNBC, Theguardian