(Bloomberg) -- Goldman Sachs Group Inc. joined hedge funds including Legacy Capital in telling clients Brazil's presidential elections are likely to be tighter than polls are signaling.
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As Brazilians prepare to cast their ballots Oct. 2, incumbent Jair Bolsonaro and his leftist challenger Luiz Inacio Lula da Silva are trying to pry votes away from one another. Surveys released this week suggest the 76-year-old former president pulling further ahead and near the 50% threshold needed to win the election outright.
A first-round Lula victory is not impossible, but as Goldman economists Alberto Ramos and Renan Muta noted in a report released Thursday, voting preferences are now well cemented. Further dimming chances of definitive Lula win next week, the economists pointed to polling that suggests the political base of Bolsonaro, 67, might be more energized, while "abstention rates may be comparatively higher among Lula's supporters."
While voting is mandatory for most people in Brazil, with exceptions to the elderly and teenagers, the penalty for not showing up is largely symbolic. If a candidate does not win more than half of valid votes, the race will go to a runoff on Oct. 30.
Legacy, which has more than 30 billion reais ($5.8 billion) in assets under management, said in article published on LinkedIn that the election "may be significantly different from what is reported" in the polls.
The hedge fund manager based its analysis on a study of election results by state from 2006 to 2018. It found that the higher the average schooling of the candidate's electorate, the more polls tend to underestimate their results at the polls -- which would conversely mean potentially overestimating Lula's support.
Earlier this month, hedge fund shop ACE Capital had already devoted most of its monthly letter to discussing polls, saying that, since the 2002 elections there has been a "quite significant" difference between what the surveys say and what the first-round results show.
"Using poll results today as a sure and reliable prediction of the outcome of the elections is, in our view, inadvisable," the letter read. With the economic momentum favoring Bolsonaro and in the absence of a "major anomalous event," the election will likely be "much tighter than most analysts and market agents believe."
Brazil's Latest Polls Ahead of October Presidential Vote (Table)
Kapitalo Investimentos, which manages more than 26 billion reais, also said in a letter to clients that the economy could help Bolsonaro.
"The combination of a hotter job market and a sharply declining inflation generated an increase in the federal government's approval," it said. "This improved assessment should help the incumbent's candidacy, making the race a little tighter."
(Updates to add hedge fund comments starting in headline)
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