Brazil Stocks Plunge 14% After Lula's Unexpected Election Victory

Brazilian President Luiz Inácio Lula da Silva defied expectations and secured a fourth term, sending Brazil's stock market and other financial markets sharply lower. The sell-off sent shock waves across the stock market, with Brazil's benchmark stock index plunging 14% and some companies' shares falling more than 60%.

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On October 26 local time, the Bovespa Index, Brazil's benchmark stock index, closed at 176,608.23 points, down 13.88% from the previous trading session. It was the index's steepest decline since the early days of the COVID-19 pandemic. Trading on the Brazilian stock exchange was also temporarily suspended after the sharp drop triggered a circuit breaker.

Global investors poured money into Brazil's financial markets after Flávio Bolsonaro, the eldest son of former President Jair Bolsonaro, finished ahead of President Lula in the first round of Brazil's presidential election in early October. Expectations grew that Bolsonaro would pursue market-friendly policies, including cuts to public spending and regulatory easing, if he won the election, sending the Bovespa Index to a record high.

However, in the presidential runoff held on October 25, President Lula won with 51.79% of the vote, defeating Bolsonaro, who received 48.21%. His election victory fueled concerns that Brazil's fiscal deficit would not improve and that the country would continue to face some of the world's highest interest rates, sending financial markets tumbling. President Lula had earlier pledged large-scale fiscal spending during the campaign. He proposed reducing the workweek without cutting wages and measures to ease the debt burden on households facing financial difficulties. He also promised free public transportation on weekends to win back support from low-income voters, a traditional base of his support.

Chris Turner, head of global markets research at ING, told The Wall Street Journal (WSJ), "Everyone was greatly surprised by this result," adding, "The market consensus was that Bolsonaro would win, and his victory was seen as positive for Brazilian assets."

Thierry Wizman, global foreign exchange and rates strategist at Macquarie Group, also said, "Investors are likely to expect Brazil to maintain the status quo over the next four years, with no clear improvement, rather than the fiscal consolidation they had anticipated under a Bolsonaro government."

Losses were even steeper among individual stocks. Shares of Simpar, a Brazilian logistics and infrastructure company, plunged 64.86%. Retailer Lojas Quero-Quero (-63.93%) and road operator EcoRodovias (-60.53%) also fell more than 60%. Retailer Magazine Luiza (-58.23%), vehicle rental company Movida (-58.49%) and Vamos (-56.79%) also plunged.

The shock also spread to the foreign exchange and government bond markets. According to the WSJ, the Brazilian real fell about 8%, its biggest single-day decline since 1999. Selling pressure continued in the government bond market, pushing yields sharply higher. According to Investing.com, Brazil's 10-year government bond yield rose 2.46 percentage points, from 12.99% on October 23 to 15.45% on October 26.

This content was produced with the assistance of AI translation services.