“The second-round result will be just the beginning of investors’ evaluation.”JPMorgan, in a report on the Brazilian market
What Does JPMorgan Predict for the Brazilian Market After the Electoral Cycle?
The election results are merely the first line of the roadmap, according to JPMorgan. In an analysis released to institutional clients, the U.S. bank emphasized that the end of the second round immediately shifts investors' focus to the composition of the economic team and the sustainability of the fiscal adjustment.
Whoever wins the election will have very few days of grace. The bank's analysts read the situation directly: euphoria or frustration with the winner's name typically lasts only a few trading sessions on the stock exchange. What dictates the sustainable trajectory of the Ibovespa, the exchange rate, and interest rate futures contracts (the DI curve) is a genuine commitment to curbing public spending and respecting budgetary anchors.
While political debate on social media focuses on who will sit in the presidential chair, major foreign trading desks are watching for the appointments to the Ministry of Finance and the Ministry of Planning, the feasibility of approving budgetary matters in the National Congress, and the momentum of net tax revenues.
- What does not sustain a market rally: Generic campaign promises, populist victory speeches, and isolated bets on the immediate volatility of the polls.
- What JPMorgan points to as the real test: The nomination of technical or politically credible figures for the Ministry of Finance, a clear plan to control gross debt-to-GDP, and tough spending-adjustment measures.
Why Has the Economic Team Become the Pivotal Factor?
For JPMorgan, defining the ministers is not a mere political protocol. The economic team signals the government's appetite to resist partisan pressures in favor of balancing the books.
In Brazil, the cost of capital and the level of the Selic rate are directly contaminated by the perception of state solvency. When the market sees a minister aligned with fiscal discipline, the risk premium embedded in long-term interest rates shrinks. If the choice is perceived as condoning runaway spending, future interest rates jump immediately.
Retail investors typically feel this impact with a lag, but the mechanics are swift. Foreign investors, who account for the bulk of liquidity traded on the B3, will not carry risk assets in emerging markets without clarity on the ceiling of public liabilities. The appointment of the team is the first clue as to how far campaign promises will be trimmed by the reality of the public accounts.
Appointment of a team with a track record of austerity, presentation of credible primary surplus targets, and a narrowing long-term interest rate curve.
A ministry focused on expanding spending without revenue offsets, friction with the Central Bank, and a sharp widening across the DI curve.
What Does Fiscal Adjustment Unlock for Companies and Real Estate Funds?
The market's obsession with fiscal adjustment is not theoretical: it directly affects the net returns of those who invest in stocks and real estate funds. Disordered public finances force higher interest rates for longer, making credit more expensive and reducing the operating profit margins of listed companies.
If the test highlighted by JPMorgan has a positive outcome—featuring a credible team and consistent fiscal guidelines—future interest rates will decline. This movement reduces the discount rate used to calculate the present value of companies on the stock exchange and revalues real estate assets in FIIs upward.
On the other hand, if the elected government postpones tackling mandatory spending, the real interest rate on Tesouro Direto government bonds (NTN-B / Tesouro IPCA+) will remain elevated. When risk-free government bonds pay IPCA + 6% or more, risk assets must deliver stellar operational results to justify unitholders' appetite.
In real estate funds (FIIs): Relief in the interest rate curve boosts brick-and-mortar FIIs (shopping malls, logistics warehouses, and office buildings), whose units suffer when long-term rates are high. If fiscal discipline falters, paper FIIs pegged to the IPCA remain the primary hedges for carry.
In equities: Domestic cyclical sectors (retail, homebuilding, and technology) depend on a credible economic team to unlock valuation. In the event of fiscal stress, only exporters and commodity producers typically protect purchasing power.
In fixed income: It is a time for decision-making between locking in attractive pre-fixed rates (if you believe in the success of the fiscal adjustment) or maintaining protection in post-fixed and short inflation-indexed bonds.
Three Practical Triggers to Watch in the Coming Weeks
Instead of trying to guess the direction of the Ibovespa based on Sunday night's election results, smart investors should monitor the institutional transition timeline outlined by the financial market.
Announcement of the Minister of Finance — The reception of top-tier names serves as the immediate thermometer for the exchange rate and the DI futures curve.
Budget Guidelines — How expenses left out of preliminary budget proposals will be accommodated, and whether there will be maneuvers around fiscal rules.
Signals Regarding Central Bank Autonomy — Whether the new administration will defend technical inflation convergence or push for artificial cuts in the benchmark Selic rate.
The Verdict: Investors Should Trade Economic Policy, Not the Election
JPMorgan's core message serves as a warning against hasty decisions in the heat of election counts. The volatility of the first few days post-vote is typically short-term noise. What defines your portfolio's real return over the coming years is not the victory speech from the podium, but the mathematical rigor of the budget presented afterward. Maintain diversification between inflation-protected fixed income and quality real assets while the new government's fiscal test has yet to translate into concrete actions.
