The Sao Paulo Stock Exchange was up more than 5% on Monday two hours before the close, the day after the first round of the Brazilian presidential election which saw outgoing head of state Jair Bolsonaro obtain a better score than expected.

The Ibovespa index was up 5.20% at 3:30 p.m. (6:30 p.m. GMT) to 115,762 points, with investors also welcoming an ultra-conservative push in Congress and hoping for the continuation of liberal economic policies.

A "much more right-wing" Congress

On Sunday, Jair Bolsonaro (far right) won 43% of the vote, behind the left-wing ex-president Lula (48%), a much smaller gap than the polls predicted.

Ordinary shares of the large public group Petrobras soared by more than 7%.

These price increases are explained by the fact that "whoever wins (the second round of October 30) he will have to govern with a more right-wing, more liberal and pro-market Congress, which will have a lot of weight", explains economist Igor Macedo of Lucena.

The Liberal Party (PL) of Jair Bolsonaro now has 99 seats instead of 76 in the Chamber of Deputies and has become the most represented party in the Senate with 15 seats out of 81, against 7 previously.

Moreover, the center parties made gains, while Lula's Workers' Party (PT) made less progress than expected.

Reduced room for maneuver for Lula, in the event of victory?

If Lula wins, his room for maneuver will be reduced to impose social policies or strengthen the role of the state, prospects that worry the market.

"The market believes that if Lula wins, he won't be able to implement the drastic changes he promises, and that if Bolsonaro wins, Congress will be more willing" to pursue liberal policies, says Jason Vieira, chief economist at Infinity Asset Management.

In the event of a re-election of Bolsonaro, investors “believe that he could further advance the privatization program, as well as the reforms of the tax system and public administration”, explains Igor Macedo de Lucena.

And if Lula were elected, he could have difficulty implementing the economic measures planned in his program, such as the revision of the labor code.

To be able to govern with this Parliament clearly marked on the right, “he will have to get closer to personalities more able to put in place a moderate economic policy”.

The business community has also seen with a good eye the fact that Lula received the support last week from Henrique Meirelles, former Minister of the Economy of Michel Temer (2016-2018) and ex-president of the central bank, taking budgetary rigor.

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