Bolsonaro is seen as a market friendly contender due to his favorable economic platform. The presidential candidate wants the Brazilian central bank to be more independent and to privatize state-run companies. He has also pledged to take a tough stance against corruption.
In contrast, investors fear a Haddad victory would maintain the status quo, which has dragged down Brazil’s economy to where it is today.
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.”
“Although markets should rally as the left-wing victory tail risks dissipate, the sustainability of the rally will be highly dependent upon the likelihood of meaningful fiscal reform next year, which is still uncertain and will be a key focus of markets after the election,” Ribeiro added.
Bank of America Merrill Lynch also also upgraded Brazilian equities to overweight from neutral ahead of Bolsonaro’s potential presidential election win, citing the easing of political uncertainty and discounted valuations in response to the favorable vote counts, Bloomberg reports.
“While the final outcome will only be decided in three weeks, we believe the market will view reduced uncertainty positively,” BofAML strategists wrote in a note. “Since 1989, the winner of the first round has been victorious in 5 out of the 5 presidential elections.”
For more information on the Brazilian markets, visit our Brazil category.