By Oliver Griffin, Luciana Magalhaes and Marcela Ayres
SAO PAULO/BRASILIA, Oct 5 (Reuters) - Brazilian markets are expected to jump on Monday after right-wing Senator Flavio Bolsonaro outperformed private polls and took the lead in the first round of the country’s presidential election on Sunday, analysts told Reuters.
Flavio Bolsonaro and his chief rival, President Luiz Inacio Lula da Silva, led the field of 12 candidates as the election’s two frontrunners in a campaign which hinged on the rising
cost of living, corruption, and the specter of crime and insecurity.
Flavio Bolsonaro – the son of former President Jair Bolsonaro, who is serving a 27-year sentence for plotting a coup after losing the 2022 election – took 47% of the votes cast, beating polls, and will now face Lula, who received some 45% of votes, in a second-round vote near the end of this month.
Polls had expected Lula to lead the first round and Flavio Bolsonaro to come in second place.
Analysts told Reuters they expect Brazilian markets to react positively in the wake of the result, forecasting stock rises and strengthening of the country’s currency.
"The market wants change, it wants reform, it doesn't want a high public deficit; with the current government, all of this will continue,” Pedro Galdi, investment analyst at the AGF Investments platform, told Reuters, adding that he expected Brazil’s market to rally, stocks to rise, and for Brazil’s real to strengthen against the dollar.
Four years ago, Brazil's currency strengthened more than 4% against the dollar and the benchmark Bovespa equities index jumped 5.5% the day after former President Jair Bolsonaro enjoyed a stronger-than-expected performance against Lula in the first-round vote.
A similar performance could take place on Monday, said Ivo Chermont, chief economist at Quantitas.
"Investors will wake up on Monday to a very powerful rally across asset classes," Chermont said. "We're probably talking about the dollar falling somewhere in the 2% to 4% range, equities rising perhaps 4% to 6%, and both nominal and real interest rates tightening significantly."
The younger Bolsonaro's strong showing on Sunday will spark renewed confidence in Brazilian markets in the short term, said Bryan Harris, managing partner at political and corporate intelligence firm Sabio.
"The market will be looking for clear signals from Bolsonaro that he is serious about tackling the country’s problems," Harris said, though adding that the senator has shown little aptitude for economic policymaking.
Jair Bolsonaro went on to lose to Lula in the second round and was subsequently convicted of trying to carry out a coup to overturn the election result.
In the run-up to Sunday’s vote, Lula allies warned the administration of US President Donald Trump could refuse to recognize a Lula victory, citing a blocked effort to send US election observers to Brazil.
Trump did not formally endorse a candidate prior to the vote but previously hosted Flavio Bolsonaro at the White House and praised him publicly.
Others had warned of outside interference, with Reuters reporting last week that Brazilian intelligence briefed French and German officials on alleged US and Russian interference before the election, claims the US has rejected.
Scandals dogging the leading candidates during the first round of the campaign will surely follow them into the second, as voters express anger at corruption.
Controversy surrounding the now-defunct Banco Master has engulfed much of Brazil's political class after Daniel Vorcaro, who ran the bank, was arrested earlier this year and accused of a multibillion-dollar fraud scheme.
The investigation has probed the banker's ties to figures from Supreme Court Justice Alexandre de Moraes to Flavio Bolsonaro, who is being investigated for money laundering tied to the case by the federal police. Both have dismissed the allegations against them.
(Reporting by Oliver Griffin and Luciana Magalhaes in Sao Paulo and Marcela Ayres in Brasilia; Writing by Oliver Griffin;)
