Brazilians will head to the polls on Sunday to elect the next president. Former President Lula is expected to prevail over incumbent Bolsonaro, but may not receive enough votes to avoid a runoff election. The main risk for assets is a contested election.
, perhaps not in the first round but in the runoff. His comeback should be mostly positive for Brazilian assets at least initially during the honeymoon period before large legislative initiatives are considered. This means that the Brazilian real could appreciate against the U.S.
, although global recession prospects are a threat to the bullish thesis. However, if conditions stabilize, Brazilian stocks could take advantage of "higher for longer" commodities prices. With inflationary pressures easing, there is an increased likelihood that the central bank could begin to ease monetary policy in 2023 after delivering 1115 basis points of tightening since 2021. This should also be a tailwind for risk assets., with Ibovespa trading at a NTM P/E ratio of 6.
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