Brazil Stocks Hit Record as Dollar Crashes After Election Shock

Brazil’s election delivered a dramatic impact on its financial markets today. The Ibovespa crossed 200,000 points for the first time in history on Monday after right-wing leader Flávio Bolsonaro unexpectedly finished ahead of President Lula da Silva in the first round of Brazil’s presidential election.

The benchmark index went up more than 10% today, the highest single-day gain this year.

Markets Rally After Bolsonaro Wins Primary Election

Bolsonaro secured 47.03% of valid votes, compared with Lula’s 45.16%, according to Brazil’s Superior Electoral Court. The two will meet again in a runoff on October 25.

The result challenged late polling and triggered an immediate repricing of Brazilian assets.

The US-listed EWZ fund, which tracks Brazilian equities, jumped almost 13% in pre-market trading.

Brazil’s currency, real, surged too. The dollar dropped 5% today in a straight line. 

JPMorgan said Brazilian stocks could rise as much as 11% in the short term and the dollar could continue falling. 

The Rally Now Faces a Reality Check

The election is still unfinished, and investors are already looking beyond the ballot box.

“Markets don’t price election results; they price execution,” said André Matos, CEO of MA7 Capital.

The next test will be fiscal policy. Sidney Lima of Ouro Preto Investimentos said a credible plan for debt and spending could lower Brazil’s risk premium. 

Gustavo Assis of Asset pointed to long-term interest rates as an early measure of whether confidence lasts.

Fábio Murad of Wiser Asset said the dollar could become the fastest indicator of that shift.