What happened

Shares of several Latin American and Brazilian stocks moved higher this week, as Brazil's presidential election kicked off earlier this week.

For the week, shares of the online marketplace MercadoLibre (MELI 4.62%) traded 13.5% higher by 1:47 p.m. ET on Thursday, according to data provided by S&P Global Market Intelligence.

Over the same period, shares of the Brazilian digital bank Nu Holdings (NU 2.68%) traded roughly 9.3% higher, and the Brazilian investment management company XP (XP 1.48%) was roughly 12.2% higher.

So what

Voting for Brazil's next president commenced last Sunday with results coming in later that day and into early Monday. 

Person looking at upward stock chart on computer.

Image source: Getty Images.

The challenger and former president, Luiz Inácio Lula da Silva, won more than 48% of the vote but needed to reach a 50% majority to win outright. Incumbent Jair Bolsonaro performed better than initial polling had indicated, garnering about 43% of the vote and with many of his allies doing well in congressional elections. Now, the two candidates will compete in a runoff on Oct. 30.

The stock market seemed to cheer the gridlock, which many analysts took to mean that more-radical policy initiatives would be harder to pass. A poll from Wednesday showed that da Silva still held a firm advantage going into the runoff with 51% support, but polling proved inaccurate during the first round of the election.

"Bolsonarism is much more alive and has a further reach than people had thought and polls had captured," Esther Solano, a political scientist, said earlier this week. "What we underestimated was the network of regional Bolsonarism. We have to rethink how we are failing to measure the true reach of Bolsonarism in daily life across Brazil."

Investors seem to favor Bolsanaro's more right-wing policies such as the incumbent's pledge to privatize Brazil's state-owned oil and gas company, Petrobras.

The key for Brazilian stocks will be if the country can get through the elections peacefully and in a way that doesn't disrupt its economic direction.

Bolsanaro had said coming into the election that he thought the results might be rigged and wasn't sure if he was going to accept them. That has led some to fear that a coup could be in the making, although many experts don't know if Bolsanaro has the political capital to pull off such a feat.

Now what

Brazil's economy can be very volatile; the country is typically dealing with high inflation. But it currently looks to be very well positioned, perhaps even better than many other global economies.

Inflation is on the decline, Brazil's central bank might soon be able to stop raising interest rates, and unemployment is also headed downward. Economists are now projecting Brazil will achieve close to 3% gross domestic product growth this year, a significant revision upward.

The market presents an incredible opportunity for digital disruptors. For instance, Nu Holdings has managed to acquire 65 million customers, or 36% of the Brazilian population, with its low-fee banking products and sleek digital interface. MercadoLibre, which serves a number of markets in Latin America, had 41 million unique buyers in the second quarter.

So if the country can get through this election peacefully, I think these stocks are well positioned to capitalize and gain momentum.