Brazilian stocks soar after Bolsonaro upsets Lula in first-round presidential vote

Brazilian stocks and the real surged on Monday after the incumbent president unexpectedly finished second in the first round of the country's presidential election. Brazil’s benchmark Ibovespa stock index jumped 8.6% to mark an all-time high, while BlackRock’s iShares MSCI Brazil ETF surged 13.6% in New York trading. Nu Holdings, the parent company of Brazilian neobank Nubank, also gained 13%. Meanwhile, the real strengthened nearly 5% against the dollar.

Right-wing Senator Flávio Bolsonaro, the son of former President Jair Bolsonaro, emerged as the front-runner in the election. He won 47% of the first-round vote, while incumbent left-wing President Luiz Inácio Lula da Silva received 45%. The result surprised markets, Bloomberg reported. Before the vote, investors had widely expected Lula to finish ahead of Bolsonaro. Now, the race appears to be Bolsonaro’s to lose, JPMorgan Chase said in a note. The second round is scheduled for October 25.

Investors are treating Bolsonaro’s first-round victory as a sign that Latin America’s largest economy may move toward fiscal consolidation and lower interest rates, which remain among the highest in the world, Bloomberg noted.

“Flavio is seen as a better option in the eyes of investors,” Daniela Da Costa-Bulthuis, a portfolio manager at Robeco Institutional Asset Management, told Bloomberg. Bolsonaro’s intention to implement a fiscal consolidation plan would give the central bank room to continue cutting rates and abandon its "ultra-restrictive" monetary policy, she added.

Bolsonaro has yet to present a detailed reform plan, but investors believe he is more likely to pursue cuts in government spending. Markets see this as essential to bringing down double-digit interest rates. Lula, by contrast, has avoided specific commitments to reducing the budget deficit and expanded social-aid programs and some subsidies in the final weeks of the campaign. This reinforced investor doubts about his willingness to maintain fiscal discipline.

“Credible” signals of fiscal consolidation could trigger a significant rally in longer-dated Brazilian bonds, according to Solange Srour, head of Brazil macroeconomics at UBS Global Wealth Management. Investors were also surprised by the strong performance of right-wing candidates in Sunday’s races for regional governors, Congress, and the Senate. Taken together, the results point to a broader conservative shift in Brazil that may help Bolsonaro carry out his fiscal agenda, Bloomberg wrote.

“The conditions have never been this favorable,” said Guilherme Abbud, CEO of Persevera Asset Management, which oversees $921 million. He said the rally in Brazilian markets could continue for several days. “The degree to which Flavio beat the polls and expectations will be difficult for Lula to overcome,” said Jim Hayes, a portfolio manager at Lucerna Global Capital. “A new mandate will be cause for optimism, unleash pent-up investment and allow rates to come down much faster than they otherwise would.”

Not everyone is equally optimistic. Bloomberg Markets Live macro strategist Sebastian Boyd noted that actually cutting fiscal spending will be much harder than talking about it, leaving markets at risk of disappointment once the euphoria fades.

Bolsonaro emerged as Lula’s main challenger in late 2025 after being handpicked by his father, which initially disappointed investors. A steady stream of reports about his ties to banker Daniel Vorcaro, the man at the center of Brazil’s biggest-ever bank fraud case, further soured markets on his candidacy. Over the last month, however, Bolsonaro’s position strengthened as Lula grappled with scandals of his own and a slowing economy. In September, the Ibovespa gained 5% in dollar terms, making it one of the world’s best-performing stock indexes.