Shares of Petrobras (NYSE:PBR), the Brazilian state oil company, fell after President Jair Bolsonaro lost his reelection battle to predecessor Luiz Inácio Lula da Silva, who is known as Lula. PBR stock dropped as much as 8% overnight on the news.
With 100% of votes counted, Lula had 50.9% of the roughly 120 million votes cast against 49.1% for the incumbent. Lula campaigned partly on environmental issues, emphasizing renewable energy and supporting protection of the Amazon rain forest.
The Bigger Issue
Before the election, PBR stock had reclaimed its 200-day moving average, rising nearly 13% in four weeks after it released positive earnings estimates. The stock also rose after the first round of voting, as Bolsonaro did better than expected and forced a runoff. Before the election, one hedge fund predicted PBR stock could rise 50% in a best-case scenario.
Petrobras is mostly owned by the government, and Bolsonaro replaced the CEO with one of his own officials this year. But he hinted in recent months he might privatize the company if he is reelected, which markets took as another bullish sign.
Petrobras was the subject of a corruption investigation called “Operation Car Wash” in the 2010s that implicated Bolsonaro’s predecessor Dilma Rousseff, an ally of Lula. Lula’s program has suggested a windfall profits tax against Petrobras to pay for his social programs.
But the company recently discovered large new oil fields offshore, possibly an extension of fields found by Exxon (NYSE:XOM) off Guyana. If Petrobras can exploit those fields, it would be bullish for the company and assure global oil price stability.
What Happens Next for PBR Stock?
If Bolsonaro accepts defeat, and if Lula can keep corruption at bay, Petrobras stock is likely to recover.
However, both are uncertain, and markets hate uncertainty.
On the date of publication, Dana Blankenhorn did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.