Brasília (AFP) – Brazilian stocks surged to record highs Monday, with Sao Paulo’s main index up almost nine percent by midday, after a surprise first-round election result saw right-wing senator Flavio Bolsonaro edge past incumbent Luiz Inacio Lula da Silva. The Ibovespa index hit a record high of almost 210,000 points after Sunday’s presidential election, which heads to a run-off in three weeks. Flavio Bolsonaro secured 47 percent of the vote, ahead of leftist Lula’s 45 percent. Lula now faces a tough path to a fourth term in office in the October 25 run-off election.
The son of far-right former president Jair Bolsonaro has promised fiscal austerity in the face of rising public debt and a smaller state. Investors see Bolsonaro as “more aligned with Brazil’s economic and fiscal needs,” Jerson Zanlorenzi, head of the equities and derivatives desk at BTG Pactual, told AFP. Stocks “have been heavily discounted in Brazil over the past four or five years, mainly because of the dynamics of high interest rates here, as well as the prospect of low foreign investment,” he said. “Brazilian equities were already very cheap and almost nobody had a position,” Zanlorenzi said.
Investors also reacted to Bolsonaro’s party making sweeping gains in Congress, indicating that a victory in the run-off would give him “the necessary quorum to pass the major reforms Brazil needs.” Some stocks surged 20 percent, with further room for gains as share prices have lagged behind corporate earnings, he said. Brazil’s currency, the real, also strengthened against the dollar.
During Lula’s third term in office, inflation has come under control, and unemployment fell to historic lows. However, Brazilians complain about a loss of purchasing power, and authorities are concerned about rising household debt. At 13.75 percent, Brazil has some of the highest interest rates in the world, which has been a frequent complaint by Lula. Inflation eased to 4.44 percent year-on-year in July, according to Brazil’s IBGE statistics agency, within the government’s target range.
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