First reaction of the market to Lula’s victory: Brazilian shares fall 2.5% before the opening of Wall Street

Brazil's President-elect Luiz Inacio Lula da Silva reacts at a late-night meeting on the day of the second round of the Brazilian presidential election, in Sao Paulo (Reuters)
Brazil’s President-elect Luiz Inacio Lula da Silva reacts at a late-night meeting on the day of the second round of the Brazilian presidential election, in Sao Paulo (Reuters)

Brazilian financial markets brace for a volatile session after leftist Luiz Inacio Lula da Silva will win the presidential elections on Sunday, as investors weigh speculation about his cabinet against the risk that his defeated rival will question the results. In trading before the Wall Street open, the index iShares MSCI Brazil which brings together the most important shares in that country, fell 2.51% predicting a day of red numbers.

Investors will be watching closely for signs of political tension that could create turmoil or derail expansion in Latin America’s largest economy. With an economic growth forecast of 2.7% for 2022, the Brazilian equity market Bovespa It has gained 14.8% in US dollar terms this year, second best among world benchmarks, while its currency, the real, was up 5.2% against the greenback as of Friday.

President Jair Bolsonaroknew how to cast suspicion on an alleged fraud in the Brazilian elections even before the voters went to the polls and last year raised the possibility of refusing to accept the results of the vote, mentioning the case of the American donald trump as background.

Yesterday, Bolsonaro and his campaign team remained silent in the hours after the electoral authorities declared Lula’s victory. A top adviser said that Bolsonaro would not give a speech until today, Monday.

“We expect some noise from Bolsonaro’s supporters, but it doesn’t seem like it threatens the institutions,” he said. Ricardo Lacerdafounder and CEO of the investment bank BR Partners in a note quoted by the Reuters agency.

The american depository receipt – ADR, as the shares of foreign companies listed on the New York Stock Exchange are called – of the Brazilian mining company Voucher lost 4.88% in the premarket, the operations that take place before the opening of the market. The action of Petrobras lost 1.88%, and that of Itaugained 0.78 percent.

It may interest you: This is how the main newspapers reviewed the minimal advantage with which Lula prevailed over Bolsonaro in Brazil

The futures of Brazilian realmeanwhile, also traded down 1.85 percent.

In the stock markets, state-controlled companies were expected to suffer as Lula’s victory rules out the promise of privatizations launched by Bolsonaro.

In his victory speech on Sunday night, Lula promised to unite a divided country. He called for international cooperation to preserve the Amazon rainforest and said he will seek fair world trade instead of trade agreements that “condemn our country to be an eternal exporter of raw materials.” He also said that he is concerned that Bolsonaro will allow an orderly transition.

Acting President Jair Bolsonaro has not yet conceded defeat and is expected to speak on Monday (Reuters)
Acting President Jair Bolsonaro has not yet conceded defeat and is expected to speak on Monday (Reuters)

Lula has been cautious about possible cabinet elections during the campaign, but a number of trusted allies from his Workers’ Party (PT) are expected to take key posts in the new government on January 1.

In the last days before the second round of elections, the former president of the central bank of Brazil Henrique Meirelles and former Minister of Health Alexander Padilha they emerged as two strong candidates to lead the country’s economic team in the event of a Lula victory. They are “moderate” candidates, who would bring the new and third-time president closer to the approval of investors.

Before the vote, Citi analysts, led by Donato GuarinoThey said that Brazil’s institutions “are prepared to disrupt any challenge effort made by Bolsonaro regarding the election results,” and the electoral courts are expected to strike down any accusations by Bolsonaro.

It may interest you: Bolsonaro is slow to admit defeat in Brazil’s presidential elections

JPMorgan analysts, quoted by Reuters, said that “political tension may increase in the near term, and we will be closely monitoring this risk.”

Markets will be attentive to the magnitude of the waiver of the spending ceiling to make room for campaign promises, and to a more detailed program of proposals such as tax reform and the new fiscal anchor to replace the spending ceiling and possible changes in labor reform, Goldman analysts said.

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