Brazilian assets added to their month-long rally on Monday, with the Bovespa stock index jumping to a new record high, after far-right candidate and market favourite Jair Bolsonaro won the country’s presidential election on Sunday.

While the market had largely priced in a Bolsonaro win in the run-up to this weekend’s run-off, the wide victory margin — along with the former army captain’s pledge last night to press ahead with fiscal and government reforms — were enough to prompt investors to keep piling in.

The Bovespa stock index jumped more than 3 per cent within minutes of the market open to hit a new peak of 88,276.50. Within this, state-owned oil major Petrobras saw its shares advance 4 per cent while Vale, the mining company, gained 1.5 per cent. The Brazil-focused iShares MSCI Brazil exchange-traded fund climbed 3 per cent higher in New York.

Meanwhile, the real rose as much as 1.5 per cent to R$3.58 per dollar, the highest level since mid-May, and takes the currency’s gains since mid-September to over 14 per cent.

Strong demand for the country’s sovereign bonds helped push down borrowing costs. Yield on the country’s 10-year dollar-denominated bonds fell 9.4 basis points to 5.292 per cent, compared to the 6.304 per cent seen at the start of September.

Despite his inflammatory attacks on women, minorities and the gay community, Brazilians and investors alike have flocked to back Mr Bolsonaro’s bid to lead Latin America’s largest economy, with many seeing him as the “least worst candidate.”

Mr Bolsonaro’s promise to trim the country’s deficit and reduce the size of the government have also won him support among those who had feared another presidency under the leftwing Workers’ Party (PT). The party has been blamed for years of corruption and economic mismanagement that culminated with the country falling into its worst recession on record and the loss of its investment grade credit rating.

“We will break the vicious cycle of growing debt,” Mr Bolsonaro said in his victory speech last night. “Substitute it with the virtuous cycle of smaller deficits, falling debt and lower interest rates.”

Some analysts have been warning that Mr Bolsonaro’s promise of reform is likely to be easier said than done given how infamously fractured the country’s congress is, with over 30 parties all vying for power.

However, Joao Pedro Ribeiro at Nomura said on Monday that Mr Bolsonaro’s emphatic 11 percentage point win over the PT’s Fernando Haddad will provide the new administration “with significant political capital.”

William Jackson, chief emerging markets economist at Capital Economics, said the bigger question for investors going forward is how committed Mr Bolsonaro will be to his pledges of reform.

“It’s certainly true that Bolsonaro’s team has talked a good game on economic policymaking,” he said. “But it is also unclear quite how committed Bolsonaro himself is to such policies. Indeed, in the run-up to the second round vote, he rowed back on fiscal tightening, pension reform and privatisation.”

“What’s more, there has always been a lingering uncertainty about whether he will really expend his political capital on economic reform or on his conservative social policy.”

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