Brazil’s benchmark Bovespa stock index gained 5.5 percent on Monday after right-wing candidate Jair Bolsonaro won the first round of the presidential election.
Itau Unibanco Holding SA, state-oil company Petrobras and Branco Bradesco SA were among the biggest contributors to the Bovespa’s surge. The iShares MSCI Brazil exchange-traded fund climbed 7.2 percent and was on pace for its biggest one-day gain since March 17, 2016, when it rose 8.9 percent.
An ultra-conservative former army captain, Bolsonaro easily beat out a dozen other presidential candidates but fell short of the 50% of valid votes needed to avoid an October 28 second-round showdown with Worker’s Party head Fernando Haddad, who is also the former mayor of Sao Paulo.Bolsonaro, the Social Liberal Party leader, won 46 percent of the vote to Haddad's 29 percent, according to official results.
Investors are cheering on Bolsonaro because they favour his market-friendly policies. Throughout his campaign, Bolsonaro advocated for an independent central bank and said he would consider privatising state-run companies.The congressman, who spent weeks in the hospital after a near-fatal stabbing at a rally one month ago, also vows a brutal crackdown on crime and corruption.
Bolsonaro’s chief economic advisor is Paulo Guedes, a respected US-educated neoliberal economist, who is likely to be finance minister at the head of a "superministry" overseeing the economy, industry, trade, investment and planning. It was that prospect that spurred Brazil's markets. Guedes is also in favour of privatisations, foreign direct investments and overhauling the pension and tax systems.
The Brazilian real was up as much as 4% to 3.75 per US dollar on Monday hours after final election results came in. Brazilian stocks rose sharply last week ahead of Sunday's vote as surveys showed Bolsonaro gaining ground. The iShares MSCI Brazil exchange-traded fund (EWZ ) surged 8.7 percent while the Bovespa index gained 3.8 percent.
Joao Ribeiro, a LatAm strategist at Nomura, expects the rally to continue “over coming days should the market solidify its conviction in a Bolsonaro victory in the second round.”
Meanwhile, Bank of America Merrill Lynch strategists wrote in a note: “While the final outcome will only be decided in three weeks, we believe the market will view reduced uncertainty positively. Since 1989, the winner of the first round has been victorious in 5 out of the 5 presidential elections.”
Investors hope that Bolsonaro will promote an orthodox economic policy in Latin America’s largest economy. Historically, the Brazil Stock Market (BOVESPA) reached an all time high of 87652.64 in February of 2018.