Brazilians face a pivotal decision in less than three weeks as they prepare for a presidential run-off between incumbent Luiz Inácio Lula da Silva and right-wing contender Flávio Bolsonaro, son of former president Jair Bolsonaro. Both candidates advanced to this stage after receiving the most votes in the first round held on Sunday.
Emerging results from the first round have shifted investor sentiment significantly. On the prediction market platform Kalshi, Bolsonaro’s chances of winning have surged to over 80%, up from approximately 60% prior to the election. Likewise, on Polymarket, his odds increased to 85%, marking a notable rise from 63%. Initially, Bolsonaro was perceived as a likely runner-up to Lula according to several pre-election polls, yet he secured more than 47% of the votes, besting Lula by nearly 2 percentage points.
Following this unexpected outcome, Brazilian assets experienced a substantial rally. The iShares MSCI Brazil ETF saw gains of over 12% on Monday, with U.S.-listed shares of Itau Unibanco rising by 15% and Banco Bradesco jumping 19%. Brazil’s Bovespa index was also up by 8%. Investors view Bolsonaro as more market-friendly, largely because of his promises of increased fiscal discipline, especially in light of Brazil’s high deficit-to-GDP ratio of almost 10% as of June.
Lula, aiming for a fourth term after reclaiming the presidency in 2022, is campaigning by linking Flávio Bolsonaro to his father’s controversial attempts to challenge the 2022 election result and casting him as corrupt. The decisive run-off will take place on October 25.
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