What happened
Shares of most Brazilian stocks rose after the results of Brazil's presidential election came in earlier today.
Shares of the Uruguayan online marketplace MercadoLibre(NASDAQ: MELI) rose roughly 6.6% today. Shares of the digital payments companies StoneCo(NASDAQ: STNE) and PagSeguro Digital(NYSE: PAGS) rose by 10.7% and nearly 10%, respectively.
So what
In Brazil's presidential election, no single candidate managed to obtain 50% of the vote, which means the election will head for a runoff later this month.
Former president and challenger Luiz Inacio Lula da Silva, known as Lula, claimed 48.4% of the vote, while incumbent President Jair Bolsonaro surprised experts in claiming 43.3% of the vote. Polls had the incumbent down by 10% to 15% prior to the election.
Image source: Getty Images.
Stocks reacted positively, with most investors thinking the close contest will lead da Silva to relax some of his more radical policy proposals, and excited at the potential for Bolsonaro to put up a good fight in the runoff vote.
In addition to the better-than-expected results for Bolsonaro, many of the incumbent's allies also performed well in the congressional elections, which could hurt da Silva's chances of passing his agenda even if he does win the election. Investors of Brazilian equities seem to favor Bolsonaro's policies such as the privatization of the large state-owned gas company Petrobras.
"The results of the first round of the presidential elections in Brazil suggest a close race in the second round. They also made it clear that the next administration will continue to deal with a Congress that is too fragmented to advance a reform agenda," Samar Maziad, senior analyst at Moody's Investors Service, said in a note.
It's certainly not uncommon for investors to cheer a more gridlocked political regime because it can prevent big changes that might hurt companies and their financial performance.
This also comes at a time when analysts and investors are growing increasingly bullish about the Brazilian economy, which now could post 3% gross domestic product growth this year. In addition, unemployment has declined and inflation has fallen as well thanks to the central bank's interest rate hikes, which came earlier in the cycle.
Now what
In general, I feel good about Brazilian stocks but still have some concerns about geopolitical unrest in Brazil. Bolsonaro has made prior comments about the election being rigged and how he may not accept the results.
Fintech and tech stocks like MercadoLibre, PagSeguro, and StoneCo are all down significantly this year and would benefit from an expanding economy. The Brazilian economy also presents a very attractive market long term, so if the country can get through this election peacefully, then I really like the setup.
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Bram Berkowitz has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends MercadoLibre, Moody's, PagSeguro Digital, and Stoneco LTD. The Motley Fool has a disclosure policy.
