Brazil, markets bet on the October 25 runoff

The São Paulo Stock Exchange closed the session following the first round of Brazil’s presidential election up 7.7%, the best daily performance since March 2020. The index topped the 200,000-point mark for the first time. The real appreciated 4% against the dollar on the same day, while Petrobras shares listed in New York rose 11.5%.

The market movement comes roughly two weeks ahead of the decisive date: the runoff is set for October 25. Until then, stock prices, exchange rates and energy-linked securities will remain a barometer of investors’ expectations about the vote’s outcome.

Financial markets’ reaction to a first electoral round is not equivalent to a judgment on the merits of the candidates’ proposals: rather, it signals how investors are recalibrating country risk in light of the partial result. Petrobras, Brazil’s largest energy company, is a particularly sensitive indicator because its ownership structure and investment strategies largely depend on the choices of the government in office.

The vote takes place against the backdrop of a country that carries weight in three global matters: offshore oil reserves, rare earth deposits — crucial for electronics and green technologies — and participation in the Brics bloc, which includes Russia, India, China and South Africa, among others. The next administration’s choices on these three fronts will affect trade and diplomatic balances well beyond Brazil’s borders.

On this set of facts, the news currently comes from a single source (Il Fatto Quotidiano); no independent confirmation is available at this time. What remains to be seen over the next two weeks is whether the stock rally and the revaluation of the real will hold until October 25 or prove to be a short-term reaction to the first-round result alone.