Lula win sends markets on rollercoaster ride

By the tightest margin ever, former president and center-left icon Luiz Inácio Lula da Silva is Brazil’s new president-elect. To no one’s surprise, the Brazilian stock market has been highly volatile on Monday. After starting the day with a 2.12-percent nosedive (at 10:25 am, Brazilian time), the benchmark Ibovespa index was gaining 0.87 percent by noon.

Around 3 pm Brazil time, however, factors such as the recognition of Lula’s victory by world leaders (including U.S. President Joe Biden) and by allies and members of Congress close to President Jair Bolsonaro, began to change the morning’s trend. 

Ibovespa began to rise, hitting +0.19 percent, despite a drop in share prices of state-controlled companies such as Petrobras, facing doubts regarding the level of interventionism Lula’s government will employ in these major firms. Also by 3 pm, the U.S. Dollar started to fall 2.34 percent against the Brazilian Real.

Yesterday, banks and asset managers started to update their recommendations for state-owned companies and other sectors sensitive to the election result. JPMorgan reduced the guidance for Petrobras’ ADRs (securities traded on the New York Stock Exchange) from overweight (above average market exposure) to neutral. This morning, shares of the state-controlled oil company opened down by more than 7 percent.

Morgan Stanley, in turn, revised the higher education sector, raising assets from Ânima to overweight while reducing Vitru, traded on Nasdaq, to equalweight (exposure in line with the market average, equivalent to neutral). Goldman Sachs believes consumer stocks will react positively to Lula’s victory.

So far,...