Petrobras’ stock was up more than 8% in early trading on Monday after Brazilian President Jair Bolsonaro obtained more votes than forecast in his race to re-election.

Former Brazilian President Luiz Inacio Lula da Silva, who governed the South American nation from 2003 to 2010, obtained 48.4% of the valid votes in the first round of elections on 2 October, but shy of the 50%-plus-mark to avoid a runoff.

Even though Lula ended ahead as expected, Bolsonaro’s 43.2% share of the vote was much higher than opinion polls had suggested.

Brazilian markets reacted bullishly to the news that Bolsonaro could upset Lula’s attempt to return to power in the second round scheduled for 30 October, with Petrobras’ stock rising more than 8% in the Sao Paulo stock exchange.

There is market perception that a Lula comeback would mean more interference at Petrobras, potentially bringing back price controls and subsidies and possibly reversing the divestment policies that have helped Petrobras deleverage its debt.

In the past, such policies put enormous pressure in Petrobras’ downstream segment, eventually hurting the company’s market value.

Despite the fact that Bolsonaro outperformed expectations, risk consultancy Eurasia Group believes Lula remains favourite to win later this month not only because he surpassed Bolsonaro by five points and was close to an absolute majority, but his lead is likely to grow given the breakdown of the remaining candidates.

However, Eurasia highlighted that a better-than-expected performance from right-wing parties supporting Bolsonaro in states and congress could have policy repercussions for an eventual Lula administration.

“It will place constraints particularly on his [Lula’s] ability to fund more spending with higher taxes, and as such, will moderate some of his policy ambitions,” Eurasia added.

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