Brazil Heads to a Runoff, and Markets Have Already Voted

Brazil's presidential race will be settled in a runoff on 25 October. In the first round on 4 October, Senator Flávio Bolsonaro, the son of former president Jair Bolsonaro, won 47 percent of the vote. President Luiz Inácio Lula da Silva took about 45 percent, Reuters reported. Final polls had shown Lula ahead by around three points.

The right also did well in Congress. Bolsonaro's Liberal Party nearly doubled its Senate seats, from 15 to 28, and is projected to win 121 seats in the lower house, up from 98. Lula's Workers' Party won 70, according to Al Jazeera.

The market reaction

Investors treated the result as a vote for a more business-friendly government. On the Monday after the vote, the Bovespa index rose more than 8 percent. The real strengthened by more than 4 percent and moved below 5.00 to the dollar, from about 5.22. J.P. Morgan upgraded Brazilian equities to overweight.

What each side offers

Lula, who turns 81 this month, is seeking a fourth term. He has accused the Trump administration of interfering in Brazil, including through tariffs. Flávio Bolsonaro, 45, presents Washington as an ally. He has pledged to seek an amnesty for his father, who is serving a sentence of about 27 years for attempting a coup after the 2022 election. China, Brazil's largest trading partner, complicates either candidate's foreign policy.

Oliver Stuenkel of the Getulio Vargas Foundation told Al Jazeera that no candidate who finished second in a first round has won the presidency since 1989. In Stuenkel's view, Lula's best chance is to bring out some of the roughly 30 million Brazilians who did not vote.

For holders of Brazilian assets, much of the market's optimism is already in prices. The next three weeks will show whether the result confirms it.

Sources: Reuters, Al Jazeera.