Brazilian stocks soared after the president's unexpected defeat in the first round of the election

Brazilian stocks and the currency surged during trading on October 5 following the incumbent president's unexpected defeat in the first round of the election.

Brazil’s main stock index, the Ibovespa, rose 8.6%, setting a new all-time high. The iShares MSCI Brazil ETF, managed by BlackRock, jumped 13.6% during trading in New York. Shares of Nu Holdings, the parent company of the neobank Nubank, also rose 13%. The Brazilian real strengthened by nearly 5% against the dollar.

Following the vote, Senator Flávio Bolsonaro, the son of former Brazilian President Jair Bolsonaro and a right-wing candidate, emerged as the frontrunner. In the first round of the election, he received 47% of the vote, while incumbent President Luiz Inácio Lula da Silva received 45%.

The result came as a surprise to the market, according to Bloomberg. Before the vote, investors generally expected left-wing candidate Lula to pull ahead of his opponent. Now, as a JPMorgan Chase analyst noted in a report, Bolsonaro just needs to hold on to his lead. The second round of the election is scheduled for October 25.

Investors in Latin America's largest economy view Bolsonaro's success as a signal of possible fiscal consolidation and lower interest rates, which remain among the highest in the world, according to Bloomberg.

“Investors see Flavio as the preferred option,” Daniela Da Costa-Balthuis, a portfolio manager at Robeco Institutional Asset Management, told the agency. According to her, Bolsonaro’s intention to pursue fiscal consolidation will give the central bank room to cut interest rates and move away from “ultra-tight monetary policy.”

Bolsonaro has not yet presented a detailed reform plan, but investors believe he is more likely to cut government spending. The market sees this as a key condition for lowering double-digit interest rates. Lula, for his part, has avoided making specific commitments to reduce the budget deficit and, in the final weeks of the campaign, has expanded social assistance programs and certain subsidies. This has heightened investors’ doubts about his willingness to maintain fiscal discipline.

"Convincing" signs of fiscal consolidation could trigger a significant rally in long-term Brazilian bonds, according to Solange Sroor, head of Brazilian macroeconomics at UBS Global Wealth Management. Investors were also surprised by the strong showing of right-wing candidates in Sunday’s gubernatorial, congressional, and Senate elections. Taken together, these results point to a broader conservative shift that could help Bolsonaro implement his fiscal policies, according to Bloomberg.

"The situation has never been this favorable," said Guilherme Abboud, CEO of Persevera Asset Management, which manages $921 million in assets. He suggested that the rally in the Brazilian market could continue for several more days.

“The extent to which Flavio exceeded the polls and expectations will be difficult for Lula to match. The new term will provide cause for optimism, unlock pent-up investment, and allow interest rates to fall much faster than they otherwise would,” says Jim Hayes, portfolio manager at Lucerna Global Capital.

Not all analysts share the same level of optimism. Sebastian Boyd, a macro strategist at Bloomberg Markets Live, noted that in reality, cutting budget spending will prove much more difficult than talking about it, so the market risks facing disappointment after the initial euphoria.

Bolsonaro emerged as Lula’s main rival in late 2025—following his father’s decision—which initially disappointed investors. A flurry of news reports about his ties to banker Daniel Vorkaro, a key figure in Brazil’s largest-ever banking fraud case, further damaged the market’s perception of his candidacy. However, over the past month, Bolsonaro’s position has strengthened amid scandals surrounding Lula himself and an economic slowdown. In September, Brazil ranked among the world’s best-performing stock markets—the Ibovespa index rose 5% in dollar terms.

This article was AI-translated and verified by a human editor