In the first round of Brazil's presidential election, Flávio Bolsonaro received over 47% of the votes, surpassing incumbent president Luiz Inácio Lula da Silva by nearly 2 percentage points. This unexpected outcome has recalibrated market expectations, with prediction markets now giving Bolsonaro an over 80% chance of winning the upcoming run-off on October 25.
Prior to the election, Bolsonaro was considered a narrow favorite but was expected to trail Lula in the first round. Following the results, Brazilian assets experienced a notable rise; the iShares MSCI Brazil ETF (EWZ) increased by more than 12%, while U.S.-listed shares of Itau Unibanco and Banco Bradesco rose by 15% and 19%, respectively.
Investors view Bolsonaro as more market-friendly due to his promises of greater fiscal discipline, especially in light of Brazil's high deficit-to-GDP ratio of nearly 10% as of June. Lula, who previously held the presidency from 2003 to 2010, is campaigning for a fourth term and has attempted to associate Flávio Bolsonaro with his father's controversial political actions.
The upcoming run-off will be crucial for determining Brazil's political and economic direction