Market predicts euphoric trading sessions after Bolsonaro demonstrates strength at the polls

The strength shown by President Jair Bolsonaro (PL) in the first electoral round, even though he was behind former President Luiz Inácio Lula da Silva (PT) in the dispute for the Planalto Palace, should cheer up the financial markets in the coming days, with investors turning to bets on the reelection scenario of the candidate considered most aligned with a liberal agenda.

With 99.99% of the electoral sections counted, Lula had 48.43% of the valid votes, while Bolsonaro appeared with 43.20%, according to data from the TSE (Superior Electoral Court), which indicated the second round.

Lula’s distance from Bolsonaro was lower than what was being pointed out by the main research institutes. In addition, the president’s allies secured victory in the first round in states such as Rio de Janeiro and Paraná, in addition to the Federal District, and the Bolsonarist bench also gained significant strength in the Senate.

“President Bolsonaro’s vote surprised positively and was the big surprise of these elections. Several of his allies were also surprised”, said Ricardo Lacerda, president of the bank BR Partners, for whom Bolsonaro becomes the favorite in the second round.

“I think the reforms are gaining strength and the stock market should have a strong rally tomorrow.”

Lula had consistently been ahead of Bolsonaro in the main election polls, with some of the polls pointing to a lead of more than 10 percentage points. In the last week, surveys including Ipec and Datafolha even indicated the possibility of PT winning the election in the first round.

A survey by brokerage BGC with 212 institutional players last week revealed that, on average, 20% saw Lula elected in the first round, while 60% saw the possibility that he would finish Sunday ahead, but with the decision going to the second round. .

“All the surprises go along the same lines, to show that the president’s support group and the president himself are much stronger than imagined. And this general reading should generate a positive reaction in the market on Monday”, said the economist at ASA Investments and former secretary of the National Treasury, Jeferson Bittencourt, noting that the Bolsonaro government is seen as less interventionist and more favorable to privatizations.

For Bittencourt, the discussion before the second round could turn to more programmatic topics if there is an assessment that Bolsonaro’s strength came from a better perception of the economy.

“However, I fear that the second round will be a scenario of antibolsonarismo and antipetismo, then we enter a scenario of economic risk, because we can enter the populist auction where the crux of the campaign is to promise more and more without saying how stand up”, said the economist.

In a report dated Thursday (29), analysts at JPMorgan also predicted that, in the event of a Lula lead of up to five percentage points over Bolsonaro – a scenario they said they considered more likely – stocks would react positively on Monday (3). ).

For JPMorgan, Lula’s narrower leadership would open up two possibilities: that of Lula moving more to the center, perhaps even being forced to nominate his finance minister, and a greater chance of Bolsonaro winning the elections than the average indicated. of research.

Sérgio Vale, chief economist at MB Associados, also said he expected Lula to be more central in the dispute for the second round, which, according to him, will be well regarded by the markets.

He stressed that, although this Sunday’s result (2) does not indicate favoritism of the president in the second round, it strengthens bolsonarismo and antipetismo.

“The market will be very tense over the next few weeks with what Bolsonaro will say about the results, as the tendency is for the results to be close in the second round”.

Bolsonaro has been stirring, without evidence, the specter of electoral fraud in the electronic voting system. Whenever questioned, he claims that he will only recognize the results if the elections are “clean”, without saying what that means.

In early August, Verde Asset Management partner, mega-investor Luis Stuhlberger, called the “Banana Republic (banana republic) risk” the possibility that Brazilian elections will have tight results, with possible contestation if Bolsonaro is defeated.

Partner and CEO of the manager Armor Capital, Alfredo Menezes also sees a “very positive” market after the first round.

“What it seems is that there will be a Senate, and a Congress as a whole, much more Bolsonarista, which could be a problem for Lula if he is elected, and would be favorable to Bolsonaro. It was the big surprise.”