Ibovespa Hits Record High After Election Result

The Ibovespa surged about 8% to hover around the record 200,000 mark after Flávio Bolsonaro finished ahead of President Lula in the first round of the presidential election, defying most polls. The result triggered a sharp repricing of Brazilian assets. Senator Bolsonaro received 47.03% of valid votes, compared with 45.16% for President Lula. The senator is viewed by markets as more fiscally restrictive, amid elevated domestic yields and weak business activity. Bolsonaro outperformed the average of polls tracked by Goldman Sachs by more than four percentage points. Gains were broad-based, with major banks leading the index. Itaú, Bradesco and Banco do Brasil soared between 8% and 11%.

Brazilian equities are expected to extend their recent advance on Monday, with the Ibovespa potentially heading for a fifth consecutive session of gains after Flávio Bolsonaro unexpectedly finished ahead of President Luiz Inácio Lula da Silva in the first round of the presidential election. Bolsonaro won 47.03% of valid votes, while Lula received 45.16%, with the two candidates set to compete in a runoff on October 25. The result is likely to boost investor confidence, particularly among those who view Bolsonaro as more likely to implement fiscal restraint and policies supportive of private-sector investment. A stronger conservative presence in Congress and state governments could further improve his ability to advance economic reforms if elected. Nevertheless, the narrow first-round difference leaves considerable uncertainty ahead of the runoff, meaning Brazilian stocks could remain sensitive to campaign developments and shifts in expectations.

The Ibovespa jumped 2.6% to close at 192,114 in a highly volatile session ahead of Sunday’s first round of elections. The index posted strong gains early in the session amid a favorable external backdrop, then erased them on political risks before regaining momentum. The proximity of the election keeps demand for hedging elevated. When markets reopen on Monday, the election result, the composition of Congress and signals on fiscal policy are likely to carry greater weight in the pricing of Brazilian assets. Meanwhile, oil prices fell after the G7 agreed to release strategic reserves to ease mounting fuel costs, reducing concerns over energy-driven inflation. Softer-than-expected US payrolls also supported credit-sensitive stocks as expectations of a Fed rate hike this month declined. Financials gained, with Bradesco up 3.2%. Utilities advanced, Axia rose 2.8%. Petrobras added 2.8%, while WEG gained 3.8% and Rede D’Or rose 3.6%. The Ibovespa added 4.7% on the week.