Brazilian stocks jump after court ruling likely cripples Lula's chances for election run

  • The Bovespa index, the main stock index in Brazil, rises 1 percent, while the iShares MSCI Brazil exchange-traded fund (EWZ) climbs as much as 2.4 percent.
  • Brazil's supreme court rules that former president Luiz Inacio Lula da Silva can be sent to prison while he appeals a corruption conviction, likely crippling his chances of running for president again this year.
  • "The fact that he's likely unable to run throws the race wide open," notes one economist.
Former Brazilian President Luiz Inacio Lula da Silva is greeted by supporters during a rally in Santana do Livramento, Rio Grande do Sul state, Brazil March 19, 2018.
Diego Vara | Reuters
Former Brazilian President Luiz Inacio Lula da Silva is greeted by supporters during a rally in Santana do Livramento, Rio Grande do Sul state, Brazil March 19, 2018.

Brazilian stocks jumped on Thursday after a court ruled that former president Luiz Inacio Lula da Silva can be sent to prison while he appeals a corruption conviction. The ruling increases the likelihood of a pro-reform candidate to win the upcoming election.

The Bovespa index, the main stock index in Brazil, rose 1 percent, while the iShares MSCI Brazil exchange-traded fund (EWZ) climbed as much as 2.4 percent before closing 0.7 percent higher.

Brazil's supreme court made the ruling after a 6-5 vote, likely crippling da Silva's chances of running for president again this year.

"The fact that he's likely unable to run throws the race wide open," said Lawrence Brainard, chief economist for emerging markets at TS Lombard. "The various polls with [da Silva] as a candidate show him as the leading candidate. The other candidates are sort of spread out."

Da Silva, better known as Lula, was elected as Brazil's president twice and served between 2003 and 2011. He was also one of the most popular Brazilian politicians in recent memory. Former U.S. President Barack Obama once labeled him the most popular politician on Earth. When he left office, Lula had an 83 percent approval rating.

Brainard notes that, with da Silva likely out of the picture, a centrist candidate pushing for economic reforms could emerge to win the October contest. "But no one knows who that will be," he said.

Current President Michel Temer pushed to reform Brazil's pension plan but failed, as his proposed measures were widely unpopular. The country's pension plan was a contributing factor in Brazil's deficit rising to 10 percent of GDP in 2015.

Da Silva was convicted of corruption earlier this year, making him the highest-profile casualty of "Operação Lava Jato" (Operation Car Wash), a sweeping corruption investigation that has rattled Brazil.