Market sees presidential election still supporting the external scenario

The electoral scenario has affected investors' sentiments and volatility has been felt in asset prices in recent times.

On December 5, 2025, when the first draft of the electoral design was still being made, the São Paulo stock exchange closed down more than 4% with the market reacting negatively to the news that former president Jair Bolsonaro (PL) had chosen his son Flávio (PL-RJ) as a candidate for President in 2026, to face President Luiz Inácio Lula da Silva (PT).

The market stabilized, but once the senator was the main opposition candidate, investors began to follow his movements. So the conversations linking Flávio Bolsonaro to the former owner of the liquidated Banco Master Daniel Vorcaro brought negative price fluctuations.

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On May 13th, the Ibovespa closed down more than 2%, following a report by Intercept showing that the PL pre-candidate for President had negotiated payments with Vorcaro for a film about the former president.

Despite these significant drops, analysts interviewed by CNN Money stated that the political scenario is still supporting the geopolitical context.

Until the period of defining presidential candidates, investors' focus is more on the external scenario.

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But as the electoral contest approaches, it is possible to observe clearer impacts, such as an increase in exchange rate and stock market volatility, reflecting expectations surrounding the candidates and their economic programs.

Bruno Perri, chief economist at Dom Investimentos, analyzes that, on days with little news about the conflict between the United States and Iran, and with relevant news about the October election, there is an important influence of the election factor on market movement.

Thus, for the expert, the elections are still supporting in relation to the Middle East.

Economist and investment specialist Danilo Coelho points out that it is possible to begin to feel the impact of the elections on the market with the exit of foreign capital from the stock market.

Foreign investors have withdrawn more than R$9.64 billion from B3 since the beginning of May. This is the biggest partial monthly decline since April 2024, when the total month recorded an outflow of R$11.36 billion, according to data compiled by consultancy Elos Ayta.

"Foreign investors have been taking money from the stock market every day since the middle of last month. This has caused the Ibovespa to fall to around 173 thousand points and on some days it is trading even below that level.

We are seeing a strong flow of sellers in the Brazilian market", analyzes Coelho.

What to expect in the coming months
The scenario should be one of volatility in the stock market and exchange rate, with sensitivity to political news, according to experts.

According to experts, the context of this election is especially challenging: high interest rates, greater aversion to global risk and a more unstable international environment make the market more sensitive to any sign of tension.

In the domestic scenario, the fiscal issue also gains prominence and should be one of the main points of attention, regardless of who wins the dispute.

"The electoral period tends to add more tension to a market that is already operating under pressure, increasing volatility in the coming months", says Raissa Florence, economist at Oz Câmbio.

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For Florence, this election brings a new component: the advancement of artificial intelligence in the flow of information and in the dynamics of campaigns, accelerating the circulation of news and making the environment more complex and sensitive to changes in perception.

For her, in this scenario, we must observe important fluctuations in the exchange rate, still heavily influenced by the external environment, and possible impacts on the stock market.

"The Ibovespa has been supported, in part, by the inflow of foreign capital, and electoral risk in emerging countries tends to weigh on the allocation decisions of international investors."

How to protect yourself from volatility
Volatility is expected to remain high in the coming months, especially during the election period.

According to experts, following the news and market movements closely will be essential. At the same time, strategies aimed at heritage preservation gain relevance in these moments.

For Perri, from Dom Investimentos, it is important for investors to balance their portfolio with lower risk assets, such as fixed income. The economist also states that protective assets, such as gold and the dollar, are welcome because they historically offer an inverse correction to higher risk assets.

Danilo Coelho suggests investing abroad as an alternative to overcome fluctuations in the portfolio and escape Brazilian volatility.

"The investor can start to look more and more carefully at an allocation in an American, European stock market or something in which his assets are outside the problems of our electoral period", he recommends.

The economist at Oz Câmbio adds that one of the options is long-term, lower-risk investments, such as Treasuries in the United States and public bonds in Brazil.

In addition, she recalls that it is important to look for more efficient credit alternatives in the face of a high interest rate scenario.

Ideal candidate for the market
Experts interviewed by CNN Money stated that talking about a "market's preferred candidate" at this point is still hasty.

For Florence, from Oz Câmbio, the focus of investors is less on specific names and more on the candidates' ability to demonstrate commitment to fiscal responsibility, economic predictability and governance of public accounts.

"The market tends to react more positively to applications that convey greater institutional security, reduce perceptions of risk and demonstrate a willingness to face issues such as fiscal balance, public spending efficiency and the business environment."

According to Roberto Dumas, chief strategist at GCB and professor at Insper, the market still does not have a candidate seen as ideal. For him, the important thing is what the future president will propose in relation to public accounts.

"We are waiting for a candidate, whether Bolsonaro or anyone else, who addresses the problem of public debt, because it is on an explosive trajectory.

With Lula's spending, we are already starting to think that the Central Bank will postpone any interest rate cuts," he said.

See the 5 signs that Brazil's public accounts are at risk

Source: CNN