I hear Bolsonaro's son led the early count in Brazil's presidential election, contrary to the polls. If I hold Brazilian government bonds or a Brazil ETF, what happens next?
2026-10-05
What has been confirmed so far
In the early count of the first round of Brazil's presidential election on 10/4, Flávio Bolsonaro led Lula (around 41%) with around 50%. The Datafolha poll just before the vote showed the exact opposite, with Lula at 45% and Flávio at 40% of valid first-round votes (Diário Carioca, 2026-10-01). If no candidate wins a majority, a runoff will be held on October 25 (France 24, 2026-10-04). The final count had not been confirmed at the time of writing, so the following lays out the possible scenarios.
The market has linked Flávio to expectations of fiscal tightening. Every time Flávio gained ground in the polls, the Bovespa rose (Trading Economics, 2026).
Historical precedent: the polls were wrong in 2022 too
In the 2022 first round, his father Jair Bolsonaro narrowed a 14-point polling gap to 5 points. The next day, the Bovespa rose +5.54%, its biggest gain since April 2020, and the dollar/real fell -4.02% as the real surged (CNN Brasil, 2022-10-03). State-owned utility Sabesp rose 17% and Petrobras more than 8%. Four weeks later, however, Lula won the runoff. A rally driven by first-round results does not guarantee the runoff outcome.
Three scenarios
| Scenario | Description | Real and Bovespa | Brazilian bond holders |
|---|---|---|---|
| A. Flávio wins outright in the first round | Holds a majority in the final count | Could surge several percent in a day as in 2022. State-owned companies and banks lead | A stronger real boosts returns in won terms |
| B. Runoff, Flávio ahead | Expectations build into prices over three weeks through 10/25 | Rises but swings with each runoff poll | Large expected currency gains, but high volatility too |
| C. Runoff, Lula comes from behind | 2022 repeats | First-round rally reverses. Fiscal concerns return | If the real weakens, currency losses eat into the high interest |
Even scenarios A and B have hurdles. First, Flávio is close to Trump. Improved relations with the US would benefit exporters, but whether he actually keeps his fiscal tightening pledges is a separate matter. Second, if conflict between the Supreme Court and politicians over the election outcome drags on as in 2022, the rally will be short-lived.
For Korean investors, the currency matters more
Korean individuals buy Brazilian government bonds heavily because of their tax-free interest. But the success of this product depends more on the real than on interest rates. Even with interest above 10%, a sharp drop in the real produces a loss in won terms (SBS Biz). Brazil's policy rate now stands at 13.75% after a fifth cut in September, and the market expects 13.50% by year-end (The Rio Times, 2026-09). An easing cycle is favorable for bond prices, but it also means the high carry, with real rates around 9.5%, provides less support for the real.
What investors can do
- Holders of Brazilian government bonds should watch the direction of the real through the runoff (10/25) rather than trading on a single election result. If the real surges under scenario A or B, it is worth using as a chance to lock in some gains, given the precedent of the 2022 first-round rally reversing in the runoff
- New entrants should avoid the day of a post-first-round surge and buy in stages as each runoff poll comes out
- Brazil ETFs such as EWZ are dollar-denominated and capture both a stronger real and rising stocks. Given their volatility, limit them to a small share of your portfolio
- How EWZ and the dollar/real open in tonight's US session will be the first signal of how the market read the final count