Whether Lula or Bolsonaro, Brazil knows the future president very well. And the result that comes out of the polls this Sunday will depend on the next step of the Brazilian stock market, the only one among the large markets that resists in green with increases of 7.5% in 2022. Until a few weeks ago, the polls indicated that the candidate of the Workers’ Party (PT) would touch the absolute majority in the first round, but the current leader swept his predictions and obtained 43.2 % of the votes. Now, the latest polls point to a technical draw.
On Monday after the first round, the reaction of the country’s index was more than positive. The Ibovespa appreciated by 5.5% in just one day, which means not only its highest rise in the yearbut also its greatest historical advance after an election. Since last October 2, the Brazilian parquet has risen by around 2.5%.
the next reaction
With the current estimates, how will the stock market behave next Monday? “It is said that the financial markets prefer conservative or right-wing governments, but on this occasion neither of the two candidates would be badly received by investors,” explains Antonio Castelo, an analyst at iBroker.
“In his previous stage, Lula, despite his leftist program, was able to tune in with the markets with the final idea of favoring the country’s growth… And he succeeded. In the case of Bolsonaro, he would continue with his privatization policysomething well valued”, justifies this expert.
iBroker: “Neither of the two candidates would be badly received by investors”
Taking the behavior of the index in the elections of the 21st century as a roadmap, it could fall by an average of 1.8% on Monday. In the 2018 elections, which catapulted Bolsonaro to the presidency against Fernando Haddad, the Ibovespa rose 4.6% the day after the first round to fall 2.2% after the second. The same pattern was experienced in 2014, in which it advanced 4.7% on Monday after the first round and plunged 2.8% after the victory of Dilma Rousseff (her second consecutive term).
Only the 2010 and 2002 elections are different from this pattern of behavior. In 2010, the stock market remained almost flat in the first round and rose 1% after it became known that Rousseff, Lula’s successor, was victorious. And in 2002, the first time voters elevated Lula to the presidency, the stock market plummeted more than 4% in both rounds.
“Both candidates will be constrained by the need to maintain credibility in the markets,” says Edward Glossop, emerging markets economist at abrdn. In his opinion, neither seems to have a great desire to interfere in the Central Bank of Brazil, which seems to be going to delay rate cuts as long as core inflation remains rigid.
abrdn: “Although potential growth could be higher with Bolsonaro than with Lula, both could have difficulties maintaining fiscal discipline”
“In the medium term, although the potential growth could be higher with Bolsonaro than with Lula, both could have difficulties to maintain the fiscal discipline. In fact, the use of fiscal policy has long been a tactic of Lula and his party. But the run-up to these elections has revealed Bolsonaro’s willingness to do the same,” he adds.
The real advances 19% against the euro in the year
The Brazilian currency appreciates 3.61% against the dollar this year and is the strongest cross between the main currencies. The day after the first round, the emerging currency strengthened up to 4.6% against the dollar, its highest rise in a session in the year, but also since June 2018. In its crossing with the euro, the real advances more than 19% in 2022. The Monday after the first elections it gained 2.3% of its value.