XP Stock Soars 33% to Yearly High as Flávio Bolsonaro's Surprise Lead Sparks Rally in Brazilian Markets

NEW YORK — Shares of Brazilian financial services company XP Inc. soared more than 33% on Monday, hitting a 52-week high, after conservative Sen. Flávio Bolsonaro finished first in the opening round of Brazil's presidential election, beating poll expectations and setting up a runoff against President Luiz Inácio Lula da Silva.

XP stock jumped $7.19, or 33.44%, to $28.69 in midday trading on the Nasdaq. That pushed the shares above their previous 52-week high of about $28.52 and lifted the company's market value to roughly $14.5 billion.

The rally was one of the biggest single-day gains in the company's history. The stock had already risen about 15% before the opening bell, trading near $24.80 in premarket activity, before extending its gains after trading began.

Election surprise

The move was driven by Sunday's election results in Brazil, where Flávio Bolsonaro, the eldest son of former President Jair Bolsonaro, outperformed polls that had shown Lula leading the first round.

With nearly all polling stations counted, Brazil's electoral court showed Flávio Bolsonaro with 47.04% of valid votes, compared with 45.15% for Lula. Because no candidate won more than 50%, the two will face each other in a runoff on Oct. 25.

Final opinion surveys had pointed to a Lula lead. A Datafolha poll published Oct. 1 put Lula at 45% of valid votes and Bolsonaro at 40%, while a Quaest survey released Oct. 3 showed Lula at 46% and Bolsonaro at 45%.

Flávio Bolsonaro, 44, led in 15 states, while Lula carried 12. The senator had told journalists on Sunday that he believed he could win outright in the first round.

Investors have generally viewed Flávio Bolsonaro's proposed economic policies, including a focus on fiscal discipline, as more favorable to markets than the policies of Lula, a leftist who is seeking a fourth term. Concerns about government spending and Brazil's rising public debt have weighed on Brazilian assets in recent years.

Brazil's benchmark Ibovespa index entered the election at 192,115 points after Brazilian assets rallied on Friday ahead of the vote.

Why XP is sensitive to politics

XP is one of Brazil's largest investment platforms, offering brokerage, asset management, banking and wealth management services to millions of retail and institutional clients. Its revenue depends heavily on trading activity, investment flows and the health of Brazil's financial markets.

That makes the company particularly sensitive to changes in investor sentiment toward Brazil. Expectations of stronger markets, lower interest rates and increased investment typically boost demand for its services.

Brazil has kept interest rates high to fight inflation, which has encouraged investors to keep money in fixed-income products rather than stocks. A shift toward policies seen as fiscally responsible could, in theory, allow for lower rates over time, potentially lifting stock market activity and benefiting brokerage platforms such as XP.

The company is based in the Cayman Islands but generates most of its revenue in Brazil. It went public on the Nasdaq in December 2019 at $27 per share. Monday's rally pushed the stock above its IPO price, though it remains well below its all-time high of $52.02.

Strong fundamentals

The election news added to momentum that had been building for XP.

Management has reiterated its commitment to double-digit revenue growth for the full year, and the company has posted a series of earnings that beat expectations. It has also carried out several share repurchase programs and canceled nearly 12 million treasury shares, moves that reduce the number of shares outstanding and support per-share earnings.

Before Monday, analysts at UBS and Bank of America had price targets in the range of $25 to $26 on the stock. Monday's surge pushed XP well above those levels.

The stock had traded as low as $14.81 over the past year, meaning shares have nearly doubled from their 52-week low.

Even after the rally, XP trades at roughly 11 times earnings, a valuation some investors consider modest compared with U.S. financial firms.

Insiders have not bought shares in the past 12 months, while selling about $2.4 million worth of stock, according to GuruFocus data.

Runoff uncertainty

While investors cheered the first-round result, the race is far from settled.

Polls before the vote showed a runoff between Lula and Flávio Bolsonaro as a statistical dead heat. Datafolha's final survey projected a 48% to 45% runoff win for Lula, while Quaest showed Bolsonaro leading 44% to 42%. Both results fell within the margin of error.

The runoff keeps political uncertainty alive for the next three weeks, which could lead to further volatility in Brazilian stocks and the real.

The contest is a rematch of sorts. In 2022, Lula narrowly defeated Jair Bolsonaro in a runoff, winning 50.90% to 49.10%, the closest presidential result in Brazil's history. Jair Bolsonaro, who is in jail, put his son forward as a candidate in December.

Lula, 80, and Flávio Bolsonaro also share high rejection rates among voters. A Datafolha poll earlier this year found that about 46% of respondents would not vote for Lula under any circumstances, compared with 45% for Bolsonaro.

Voter turnout was also a concern. Abstention in the first round reached 21.08%, the highest for a first round since 1998.

Investors will closely watch polls in the coming weeks as the candidates court voters who backed other contenders in the first round.

Analysts say markets could remain highly sensitive to any shift in the race, with Brazilian stocks likely to react to new polling data and campaign proposals on spending, taxes and interest rates.

For XP, the outcome of the Oct. 25 vote could play a major role in determining whether Monday's rally holds or reverses.

The runoff will decide who leads Latin America's largest economy for the next four years, with the new president taking office in January 2027.