Financial market sees ‘anti-left barrier’ as a result of the polls

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Financial market agents received what they call the “message from the polls” in a very positive way in the first round of elections this Sunday (2).

In addition to a smaller distance than that indicated by the polls between the two main candidates for the presidency, they celebrated the more conservative or centrist tendency of the new Congress and state governments from 2023 onwards.

For them, this indicates that the voter points to a path more towards the center, which reinforces the perspective of continuity of a more liberal policy — with more market freedom — and favors greater stability in the economy.

“Even to have governance, it is difficult with this composition of Congress to imagine an Executive without fiscal responsibility or with left-wing populist agendas, which is what most worries the market”, says Luis Felipe Amaral, founding partner and manager of Equitas.

“The main highlight of the election, which explains the reaction of the market, was the composition of the Congress towards the center-right, which makes it unlikely the approval of economic agendas on the left, such as, for example, repealing the labor reform. whoever the president is, we shouldn’t have an economic shift”, endorses Luiz Fernando Alves, manager of Versa Fundos de Investimento.

As a result of the vote, the markets showed a very positive performance this Monday (3), with a 4% drop in the dollar – the biggest since June 2018 – and a 5.5% appreciation of the Ibovespa – the biggest since April 2020.

CEO of manager Mauá Capital and former director of the BC (Central Bank), Luiz Fernando Figueiredo says that the results of the polls indicated that Bolsonarism gained a space that the polls of intention to vote did not predict in Congress (both in the Chamber of Deputies and in the Senate) and in state governments.

“This has a very important meaning, almost stronger until the difference in votes between Bolsonaro and Lula is much smaller than expected, although this is a second element that is also very important”, says Figueiredo.

In summary, says the CEO of Mauá, both Lula and Bolsonaro should adopt a more central-oriented speech during the campaign for the second round, since that was the direction of voting in the country.

In addition, the tight result in the presidential race may lead the PT candidate to be clearer about the economic policy he intends to adopt in his government, says Figueiredo.

“This perspective greatly reduces the chance of radicalism from side to side, which is a very good thing for the country. And, correctly, the markets are reacting very well”, says the former BC, adding that the positive performance of the stock exchanges abroad also contributed to the strong rise in shares in Brazil and the fall in the dollar.

In the same vein, the founding partner of the manager Adam Capital, André Salgado, says that Bolsonaro’s relationship with Congress should improve in the event of re-election, given the size of the right and center-right benches from 2023 onwards.

In the event of Lula’s victory, the polls show persistent conservatism, which will make PT position itself more central, adds Salgado. “I see the results with optimism.”

“Lula got ahead of Bolsonaro in the first round, but the victory tasted like defeat”, says André Gordon, founding partner and manager of GTI Administração de Recursos.

While Bolsonaro’s party adopted a successful strategy of building a broad base of support in Congress, the PT worked to settle the bill in the first round and failed, assesses Gordon.

“It was no surprise to me. I was supporting myself more at Paraná Pesquisas, which had a higher degree of success”, says the manager of GTI.

THE Sheet showed that Instituto Paraná Pesquisas received BRL 2.7 million from the PL, Bolsonaro’s party, in the pre-electoral campaign period. In a statement, the institute said that “it works for several political parties, not only for the PL”, and that “all research is carried out and delivered in accordance with contracts signed with the contracting parties”.

Gordon observes that the greater number of votes for Tarcísio de Freitas, from the Republicans, who surpassed PT Fernando Haddad in the race for the São Paulo government in the final stretch, made Sabesp’s shares soar on the Stock Exchange this Monday.

The sanitation company’s shares advanced 17% on Monday, with investors betting on a privatization process in the event of the victory of the candidate supported by Bolsonaro in the state.

According to Gordon, in addition to seeing with good eyes a more liberal government with support in Congress, if Bolsonaro is reelected, the passage to the second round also improves expectations of an eventual PT government.

“If Lula wins, he will certainly need to move towards the center, with the market considering more pro-market names in the economy, such as [ex-presidente do Banco Central Henrique] Meirelles.”

Global consultancy sees Bolsonaro’s victory as worst possible scenario for markets

British economic consultancy Oxford Economics points out that Bolsonaro’s victory in the second round would be the worst possible scenario for the markets.

“His greater support in Congress could allow him to fire Supreme Court justices, leaving him free to dissolve Congress and suspend free elections if he so chooses,” reads the report signed by Marcos Casarin, chief economist for Latin America at consultancy.

Casarin also writes that Lula’s victory and the combination of a “charismatic and progressive leader with a conservative Congress is close to the best scenario for the markets”, as it reduces the risk of adopting radical economic policies.

Also according to the Oxford Economics expert, the “surprising” increase in support for Bolsonaro in Congress will leave Lula with no option but to try to form a broad anti-Bolsonaro and pro-democracy coalition.

“This means that if Lula manages to sustain or expand his leadership and win the second round, his term in government will have to include members of other political parties outside the PT, which should be positive for asset prices.”

For JP Morgan analysts, it will be important to monitor from now on whether Bolsonaro will be able to rise in the polls, boosted by the strong result presented in the first round.

They recall that the next surveys are scheduled to be published on Friday (7th), by the institutes Datafolha and Paraná Pesquisas.

In the case of PT, the US bank’s team also added that the outcome of the previous day makes it crucial for the former president to present his macroeconomic plan, perhaps even giving a firmer view of who his finance minister will be. Bolsonaro has already indicated that Paulo Guedes will continue in the Economy.

JP Morgan also assesses that the good result of the president’s allies at the state level strengthens the incumbent’s campaign, indicating the possibility of a greater migration of votes for him. Even so, the report makes the reservation that “there are not many votes to win”, highlighting that the second round must be “very combative”.

In a report, the strategists of the Dutch bank Rabobank say that, with the election going to the second round, the scenario that the winner adopts pro-market policies becomes more likely.

For the Swiss group Julius Baer, ​​Brazilian assets should perform very positively in the short term, amid greater chances of Bolsonaro’s victory or an anticipation of the displacement of former President Lula to the political center, in an attempt to attract votes. given to Simone Tebet (MDB), with 4.2% of the valid votes, and Ciro Gomes (PDT), with 3.1%.

The institution, however, claims to maintain a neutral view until it gathers more signs of moderation from the favorite, the former PT president. Signaling that there will be a market-friendly Minister of Finance, for example, would indicate a fiscally responsible government.

For ratings agency Moody’s, regardless of who wins the presidential election, maintaining the credibility of the fiscal framework in the coming year will be essential to support the country’s sovereign credit profile.

The fierce race for the presidency and the formation of Congress for 2023 made it “clear that the next administration will continue to deal with a Congress that is too fragmented to advance an agenda of public policy reforms,” ​​said vice president and senior analyst at Moody’s, Samar Maziad, in note.

She added that the resumption of a structural reform agenda in the country will be essential to support higher growth in the medium term and facilitate fiscal consolidation efforts, especially in a context of high interest rates in the country.

Eduardo Cucolo collaborated. With Reuters.

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