Flávio Bolsonaro of the Liberal Party, or PL, and President Luiz Inácio Lula da Silva of the Workers’ Party, or PT, will face each other in a presidential runoff, but the first round has already reshaped the balance of power that will confront the next administration. The rightward wave that has swept through parts of Latin America has now reached Brazil. Congressional elections delivered a strong advance for conservative forces. Flávio’s PL is set to emerge as the largest party in the lower house, rising from 99 lawmakers elected in 2022 to roughly 120, while sharply expanding its presence in the Senate. União Brasil, Progressistas, or PP, and Republicanos also gained ground, further increasing the weight of the right and center-right.

Even after those gains, however, the PL will still depend on Brazil’s so-called Centrão to build governing majorities under the country’s coalition-based presidential system. The Centrão is not a formal alliance but a loose group of pragmatic centrist and center-right parties that have supported governments of different ideological stripes in exchange for influence over budgets, appointments and the legislative agenda. For Flávio, the difference may lie in the price of that support. PL chairman Valdemar Costa Neto has already said he expects União Brasil, PP and Republicanos to back Flávio in the runoff and has suggested that other parties could be given roles in a future administration. No formal coalition exists yet, but an alignment with parties that remained neutral or independent in the first round could provide an early outline of a governing base for 2027.

That would not mean Flávio would command an obedient Congress. The Centrão will remain the Centrão. União Brasil, PP, Republicanos, PSD and MDB have their own governors, regional power bases and political interests, as well as significant influence over federal spending. Congress has also accumulated considerably more power in recent years, particularly through lawmakers’ control over budget amendments and a stronger grip on the legislative agenda, leaving Brazilian presidents with less room to impose their priorities unilaterally.

There is another major unknown: Flávio has yet to spell out in sufficient detail how far he would take his economic and foreign-policy agenda. His campaign has signaled greater fiscal discipline, but much of the program remains under construction. On foreign policy, the clearest indication is a much closer relationship with Donald Trump’s United States. For investors, the question is whether that proximity would develop into a more asymmetric relationship, with U.S. strategic interests — from trade and critical minerals to security and foreign policy — carrying greater weight in Brazilian decision-making. For now, that remains a possibility suggested by Flávio’s political positioning rather than a fully defined government program.

In that environment, the political cost of passing some measures could fall, but it would not disappear. Flávio would still need to negotiate cabinet positions, budget resources, committee leaderships and legislative priorities. His advantage would be starting closer to the majorities he needs and dealing with parties that, on several economic issues, may be more naturally aligned with his agenda.

A Lula victory would produce a different configuration. He would retain control of the executive branch but face a Chamber of Deputies and Senate tilted further to the right and would remain heavily dependent on the same Centrão to pass budgets, tax measures, fiscal policy and regulatory changes. That could constrain initiatives opposed by Congress, but it could also make it harder for Lula to advance reforms of his own. For markets, the issue is therefore not simply whether the new Congress is “pro-market,” but how much it changes the political cost of converting a presidential agenda into law.

That may be the most important message from the first round for investors in Brazil. The presidential race remains open, but the price of governability is already shifting. A Flávio administration would begin with the largest caucus in the lower house and a strengthened right, potentially drawing a substantial part of the Centrão into its orbit. That would not eliminate Brazil’s coalition politics — it could simply make coalition-building less costly on some issues. The question for investors, then, is no longer only who will win on October 25. It is also how much political capital the next president will have to spend to govern.