Ibovespa hits record 200,000 as Brazilian assets rally after election upset

Brazil's financial markets were jolted by Monday's election result. On Monday, the Ibovespa broke past 200,000 points for the first time after right-wing leader Flávio Bolsonaro unexpectedly overtook President Lula da Silva in the opening round of the presidential election.

The index posted a gain of more than 10% on Monday, the largest single-day increase so far this year.

Bolsonaro's first-round success ignites market rally

According to the Superior Electoral Court, Bolsonaro obtained 47.03% of votes, while Lula took 45.16%. The candidates will face each other again in a runoff scheduled for October 25.

The outcome contradicted recent opinion surveys and caused an immediate reassessment of Brazilian assets.

The EWZ fund, which is listed in the US and tracks Brazilian stocks, gained almost 13% in pre-market activity.

The real also soared. The dollar lost 5% during the session, moving in a straight decline.

JPMorgan forecast that Brazilian equities could add as much as 11% in the short run and the dollar could keep declining.

Reality check emerges for rally

With the election not yet decided, investors are already focusing on factors beyond the vote.

“Markets don’t price election results; they price execution,” said André Matos, CEO of MA7 Capital.

Fiscal policy emerges as the next hurdle. Sidney Lima, from Ouro Preto Investimentos, stated that a trustworthy framework for debt and outlays might reduce Brazil's risk premium.

Gustavo Assis, of Asset, noted long-term interest rates as an initial gauge of sustained confidence.

Fábio Murad, of Wiser Asset, said the dollar could turn into the quickest measure of that shift.