The markets were betting on Bolsonaro to win the election. The triumph of the left-wing head of state comes unexpectedly for them. Rapid price and value gains are dissipating.
Brazilian flags in Sao Paulo: A surprising election victory for the incumbent moves the markets.
Dusseldorf. The outcome of the presidential election in Brazil in favor of incumbent Lula resulted in violent price fluctuations on the financial markets. The majority of investors had bet on a victory for challenger Flávio Bolsonaro and are fleeing Brazilian stocks. There is also a clear reaction on the foreign exchange market.
Brazil's leading index Bovespa lost more than 17 percent in early trading. It is the sharpest decline in six years. The stock exchange operator B3 has expanded its trading limits for Monday, reports the Bloomberg news agency. Brazilian stocks listed in the US also came under heavy pressure.
The iShares MSCI Brazil ETF, a major exchange-traded fund (ETF), lost around 24 percent and fell to its lowest level since January. Vale, one of the world's largest mining companies, has the largest weight in the ETF, followed by Nubank, Unibanco and oil giant Petrobas.
The Brazilian real also came under strong selling pressure. The currency lost more than twelve percent against the dollar and reached its lowest level since the summer of 2025.
BNP expert Stephan Kemper speaks of a “shock for the markets”. The reaction of investors could be “a little exaggerated,” says Volkar Baur, an expert at Commerzbank. “However, this exaggeration could continue for a while.”
Lula wins presidential election in Brazil – Bolsonaro does not recognize the result
The left-wing head of state Luiz Inácio Lula da Silva, Lula, won the presidential election that night. He prevailed in the runoff against the right-wing candidate Bolsonaro. However, he refused to accept the result. Bolsonaro said he would “request the annulment of these elections.” In the first round of voting he was ahead of the incumbent.
Brazil is the largest economy in Latin America. The country has more than 200 million inhabitants and can rely on large raw material and energy resources. During Lula's third term in office, the economy has grown by an average of around three percent per year since 2023, and the unemployment rate is at a historic low.
However, private and public debt has recently risen massively. Politicians have recently boosted consumption - the central pillar of the economy - primarily with government subsidies. The budget deficit is around ten percent of economic output, and the debt ratio, at 82.5 percent of gross domestic product (GDP), is higher than in almost all other large emerging countries.
At the same time, the cost of living has also risen significantly. The inflation rate is still within the central bank's tolerance range, but at 4.58 percent compared to the same month last year, it is at a level that concerns many citizens and companies. The key interest rate is 13.75 percent. Since many everyday purchases in Brazil are paid for in installments, many citizens are more indebted than ever before.
Monday's market reaction reflects investors' concerns that these heavily debt-driven policies will continue. The most important signal for the markets is a clear commitment to fiscal discipline, says Graham Stock, analyst at RBC Bluebay Asset Management. According to Commerzbank expert Baur, what now matters is how quickly Lula can credibly convince the market of upcoming reforms.
The president will not be able to avoid taking individual measures to consolidate the budget, says Thierry Larose, portfolio manager at Vontobel. However, he restricts: “Most investors doubt that these will be enough to put debt sustainability back on a sustainable path.”
Brazil's leading index recently set a series of new record levels. After Bolsonaro's victory in the first round of voting, share prices rose significantly again - also because numerous analysts and banks recommended buying Brazilian assets in anticipation of a Bolsonaro victory. As a result, bond yields have reached their lowest level in two years. The Brazilian real had also gained noticeably in value before the runoff election.
