Markets encourage Bolsonaro’s strong performance in Brazil vote

Markets encourage Bolsonaro's strong performance in Brazil vote

São Paulo (Reuters) – Financial markets on Monday received stronger-than-expected support for President Jair Bolsonaro in the first round of Brazil’s presidential election, with the October 30 run-off approaching.

The Brazilian real rose about 3% against the dollar, while the Brazilian Bovespa (.BVSP) index was up 3%.

Bolsonaro’s leftist rival, former President Luiz Inacio Lula da Silva, failed to score victory in the first round of voting on Sunday. Lula finished five percentage points ahead of Bolsonaro, but was tougher than opinion polls indicated.

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Bolsonaro’s allies also made a strong showing in a congressional vote, which could limit Lula’s space to make drastic policy changes if he returns to the presidency.

Some market participants speculated that the outcome could prompt Lula to stick to more moderate economic policies, with Bolsonaro campaigning invigorated, promising reforms and privatizations that many investors welcomed.

“I think people will see reforms as more likely,” said Ricardo Lacerda, founder and CEO of investment bank BR Advisory Partners (BRBI11.SA), adding that he believes Bolsonaro could take the lead.

Bolsonaro’s potential re-election chances have boosted shares in state-controlled companies, in anticipation that they could be privatized if he secures a second term. Shares in Banco do Brasil SA (BBAS3.SA) rose 7.8% and preferred shares in oil company Petroleo Brasileiro SA (known as Petrobras (PETR4.SA)) rose 7.8%.

Results in southeastern states such as São Paulo and Minas Gerais also affected some stocks with exposure in those regions.

Former minister Tarcisio Freitas, who is seen as a pro-market policymaker, is leading the race for the position of Governor of São Paulo. Shares in sanitation company Companhia de Saneamento Basico do Estado de Sao Paulo, better known as Sabesp (SBSP3.SA), rose 13%. Markets expect Freitas to privatize the company.

Meanwhile, shares in energy company Cemig (CMIG4.SA) rose 5% after the re-election of pro-market governor Romeo Zima in Minas Gerais.

Gustavo Cruz, a strategist at RB Investimentos, said the tough race showed that neither candidate was getting a mandate for extremist policies. “Whoever wins will not get a blank check from the voters,” he said.

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Additional reporting by Tatiana Bautzer, Andre Romani and Camila Moreira. Editing by Brad Hines, Chizu Nomiyama and Rosalba O’Brien

Our Standards: Thomson Reuters Trust Principles.

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