SAO PAULO, Oct 3 (Reuters) – Stronger-than-expected support for President Jair Bolsonaro in the first round of Brazil’s presidential election was cheered by financial markets on Monday as the race headed into a second round on October 30.
The Brazilian real rose about 3% against the dollar, while Brazil’s Bovespa index (.BVSP) rose 3%.
Bolsonaro’s leftist rival, former president Luiz Inacio Lula da Silva, failed to win in the first round of voting on Sunday. Lula finished ahead of Bolsonaro by 5 percentage points, but it was tighter than most opinion polls had indicated.
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Bolsonaro’s allies also loomed large in the congressional vote, which could limit Lula’s room for dramatic policy changes if he returns to the presidency.
Some market participants predicted that the result may push Lula to bet on more moderate economic policies, while boosting Bolsonaro’s campaign, which has promised reforms and privatizations welcomed by many investors.
“I think people will see that reforms are more likely,” said Ricardo Lacerda, founder and chief executive of investment bank BR Advisory Partners ( BRBI11.SA ), adding that he thought Bolsonaro could take the initiative.
The prospect of Bolsonaro’s possible re-election boosted shares of state-controlled companies, on hopes that they could be privatized if he were to win a second term. Shares in Banco do Brasil SA ( BBAS3.SA ) rose 7.8 percent and preferred shares in oil company Petroleo Brasileiro SA, known as Petrobras ( PETR4.SA ), rose 7.8 percent.
Results in southeastern states such as Sao Paulo and Minas Gerais also affected some stocks with exposure to these regions.
Former minister Tarcisio Freitas, seen as a pro-market politician, is leading the race to govern Sao Paulo. Shares in sanitation company Companhia de Saneamento Basico do Estado de Sao Paulo, known as Sabesp ( SBSP3.SA ), rose 13%. Markets expect Freitas to privatize the company.
Shares of electricity company Cemig ( CMIG4.SA ), meanwhile, rose 5% after the re-election of pro-market governor Romeu Zema in the state of Minas Gerais.
Gustavo Cruz, a strategist at RB Investimentos, said the close race showed that neither candidate was getting a mandate for radical policies. “Whoever is the winner, will not have a blank check from the electorate,” he said.
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Reporting by Tatiana Bautzer, Andrew Romani and Camila Moreira. Editing by Brad Haynes, Chizu Nomiyama and Rosalba O’Brien
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