For Citi Brasil’s chief economist, Leonardo Porto, President Luiz Inácio Lula da Silva (PT) appears to be the candidate best placed to win the 2026 elections.
The analysis takes into account voting intention and popularity surveys, such as those from the latest DataFolha, as well as economic projections for next year, which should be marked by a drop in interest rates and an improvement in the inflationary trajectory.
According to Porto, Lula’s net approval is around -5 percentage points – not a comfortable starting point, he says, but it is more competitive than that of former President Jair Bolsonaro going into the 2022 elections.
“He comes out on top in terms of his ability to be re-elected compared to Bolsonaro in 2022, who lost the elections by two percentage points,” he told reporters this Tuesday (9), “and the economic cycle for Lula tends to be more favorable than it was with Bolsonaro.”
During the last presidential campaign, the BC (Central Bank) was faced with post-pandemic inflation through a cycle of Selic increases. The base interest rate started 2021 at 2% per annum and ended at 9.25% per annum; at the end of 2022, it was 13.75%.
Today, Porto says, “there is a scenario of declining inflation in which BC should be able to reduce interest rates starting in January as the economy enters a gradual re-acceleration process.”
The right’s difficulty in forming a united opposition also weighs heavily. The pre-candidacy of Senator Flávio Bolsonaro (PL-RJ) last Friday (5) weakened, in the eyes of the market, the name of Tarcísio de Freitas (Republicans) in the conflict – and, therefore, increased the chances of re-election of the Lula government, whose fiscal policy is considered expansionist by operators.
Citi’s base case is that, given Lula’s favorable starting point in the elections, the trajectory of public debt will remain unchanged. In other words, it will represent around 80 to 90% of GDP between 2027 and 2029, the latest forecast horizon. Porto considers, however, that, depending on the campaign promises of candidates from both political spectrums, this forecast could evolve upwards or downwards.
Another basic assumption from Citi is that the global investor – whose entry into the Brazilian stock market resulted in a succession of Ibovespa records in 2025 – will maintain the same level of risk tolerance seen throughout this year.
If tolerance and the debt trajectory continue, the Brazilian Stock Exchange is expected to continue its upward trajectory.
“Throughout 2025, the international environment was the main factor that boosted the Ibovespa. If we compare it with other Latin American stock exchanges, we see that Mexico’s exchange rate was practically the same, 35%, as that of Brazil,” explains Eduardo Miszputen, head of global markets at Citi.
This diversification move towards emerging markets is expected to continue next year, in light of the Fed’s (Federal Reserve, the central bank of the United States) interest rate cycle – Citi’s forecast is that the base rate in these countries will end 2026 in the range of 3% and 3.25%, or 0.75 percentage points lower than the current range.
“And we continue to think that the Brazilian Stock Exchange is cheap from the point of view of the price of individual assets. We think that the Stock Exchange can continue to appreciate and reach 180,000 points, 200,000 points. It obviously also depends on the macroeconomic environment, the risk appetite, the elections and the scenarios that international investors come up with to consider these assets as a priority,” Miszputen said.
He also considers that local investors are poorly affected by the Stock Exchange, especially if we consider the rise in fixed income securities with Selic at 15% per year and the incentives to contribute to the private credit market. “If we have an environment with a lower real interest rate, we should again see a reallocation of local investors to the stock market, which could lead to appreciation a few years later.”
The risks weighing on the realization of this scenario are therefore those of an electoral race with lower than expected spending promises – Citi hopes that the budgetary framework will be respected over the next year – and the maintenance of the current risk appetite of international investors.
The latter, according to Leonardo Porto, is also conditioned on technology companies in the United States: if there is a revaluation of assets linked to artificial intelligence, a fear that has invaded the international market in recent months, it is possible that the appetite for riskier assets will be inhibited, impacting on markets like that of Brazil.
About The Author
