Brazil's markets delivered a stunning rally on the evening of October 5, with both the currency and stock market soaring across the board.
The Brazilian stock market opened with a surge of nearly 9%, while the MSCI Brazil Index skyrocketed more than 13%. The Brazilian real also jumped nearly 5%.
The catalyst behind this dramatic move is the ongoing presidential election in Brazil. Senator Flavio Bolsonaro, the candidate favored by markets, unexpectedly outperformed polling expectations in the first round, taking a lead over incumbent President Luiz Inacio Lula da Silva and positioning himself as the frontrunner ahead of the October 25 runoff.
Bolsonaro is widely seen as more market-friendly than the leftist President Lula. He secured 47% of the vote in the first round, while the incumbent president garnered 45%. Investors had broadly expected Lula to lead, with many even considering a tie to be the best-case scenario for Bolsonaro. Now, however, Bolsonaro appears to have seized the initiative in the election that will determine the leadership of Latin America's largest economy.
JPMorgan noted in a report that the election now "looks more like Bolsonaro's own race to lose." Antonina Tarassiouk, head of international economic analysis at Reams Asset Management, which manages $34 billion in assets, said: "This is a welcome surprise. The election outcome previously presented a clear asymmetry — either Lula continues in office and maintains the status quo, or Bolsonaro wins and brings more market-friendly policies with a stronger focus on fiscal consolidation. Now this result gives investors a reason to continue expanding their long positions."
Investors believe that Flavio Bolsonaro, son of former President Jair Bolsonaro, is more likely to push for fiscal adjustments such as cutting government spending. The market views this as a crucial prerequisite for reducing Brazil's double-digit interest rates, which are currently severely squeezing businesses and households.
By contrast, Lula has made few commitments to spending cuts, and in the final weeks of the campaign he further expanded social assistance programs and introduced partial subsidies, deepening investor doubts about his willingness to control the fiscal deficit.
Guilherme Abbud, chief executive of Persevera Asset Management, said: "Whether from the perspective of governing capability or the economic policy agenda, conditions are now more favorable than ever. The market should see a very strong rally, and this upward momentum could last for several days."
Sunday's election results caught the market off guard on two fronts: first, Bolsonaro achieved a clear lead; second, right-wing candidates also performed strongly in governor, lower house, and senate races. Taken together, these results indicate that Brazil's political landscape is tilting more decisively toward conservatives, which could help Bolsonaro advance his fiscal policy agenda in the future.
At the end of 2025, Flavio Bolsonaro became Lula's main challenger after being personally chosen by his father. Initially, this selection disappointed investors. Subsequently, news about his relationship with disgraced banker Daniel Vorcaro continued to emerge, further undermining market confidence in his candidacy. Vorcaro is the central figure in Brazil's largest bank fraud case in history.
However, over the past month, as Lula himself became embroiled in multiple controversies and economic growth slowed, Bolsonaro's odds of winning continued to rise, also driving Brazilian assets higher.
As Brazil enters the second round of elections, Goldman Sachs is currently focusing on two main questions: first, where the votes of eliminated candidates will flow; second, what policy proposals and economic team Bolsonaro and Lula will announce next. Goldman Sachs believes that after Bolsonaro's stronger-than-expected first-round performance, Brazil's currency, the real, still has room for further appreciation. According to an October 5 report from Goldman Sachs, the real could continue to strengthen if future fiscal commitments are further enhanced.
Vinicius Marujo, fixed-income portfolio manager at Persevera Asset Management, said: "Restored confidence and better-anchored market expectations are driving today's rally in Brazilian assets."
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