The second round of voting in the Brazilian presidential election ended successfully on October 25, 2026. Current President Lula won the election with more than 50% of the vote. (French information photo)
Lula's election victory plunges Brazilian stock and currency markets
[Financial Channel/Comprehensive Report] The second round of voting in the Brazilian presidential election ended successfully on October 25, 2026. The current president, Luiz Inácio Lula da Silva, who was striving for re-election, won the election with more than 50% of the vote. Not only did he become the first candidate in the history of Brazilian presidential elections to reverse the victory in the second round, he also became the country's first leader to have been in power for four times. However, the election results surprised financial markets, and Brazil's stock market, exchange rate and bonds suffered simultaneous selling pressure the next day.
Brazil is located in eastern South America. It is the largest country in Latin America and one of the important emerging markets in the world. According to the World Bank, Brazil has a population of approximately 213 million. It is rich in natural resources and a huge domestic demand market. Its economic activities cover agriculture, mining, energy, manufacturing and service industries.
Brazil is also an important exporter of agricultural products and raw materials in the world, with soybeans, coffee, beef, iron ore and crude oil all occupying an important position. Among them, soybeans, coffee and beef are important agricultural export items of Brazil, while iron ore gives Brazil a certain influence in the global steel supply chain.
In addition, Brazil is also an important oil producer in the world and has rich deep-sea oil field resources. Since export commodities are highly linked to international commodity prices, the Brazilian economy is easily affected by the global boom, U.S. dollar trends, and raw material prices.
However, Brazil's economy is not without its hidden worries. Despite its huge market size and natural resources, the domestic wealth gap, insufficient public finances, infrastructure and productivity issues are long-term challenges that the government must face.
Brazilian President Lula. (Ouxin file photo)
Lula was elected president of Brazil for the fourth time
Lula, who was born on October 27, 1945, is now 80 years old. He was born in a poor family in Pernambuco state in northeastern Brazil. During his childhood, he moved to Sao Paulo state with his family in search of job opportunities.
According to information, he worked in a factory when he was young, and later joined the trade union movement, becoming a leader of metal workers and leading large-scale strikes in the late 1970s. At that time, Brazil was still under a military dictatorship, and the trade union movement also became an important force against the military government.
In 1980, Lula co-founded the Workers' Party (PT) and transformed from a trade union leader into a national political figure. He ran unsuccessfully for president many times until he was elected for the first time in 2002 and was in power from 2003 to 2010. During his tenure, he promoted social welfare and poverty reduction policies, and gradually became an important representative of left-wing politics in Latin America.
During Lula's first and second terms, Brazil benefited from strong global demand for raw materials and economic growth. The government also improved the lives of low-income families through social welfare programs. The most representative policy was the "Bolsa Família" program, which assisted poor families through cash subsidies.
However, after Lula left office, Brazil's political situation and economy fell into turmoil. His Labor Party government was involved in corruption investigations, and Lula himself was convicted and imprisoned in corruption cases. It was not until the Brazilian Supreme Court overturned the relevant verdict and reinstated his eligibility to run that he returned to the political stage.
In 2022, Lula defeated then-President Jair Bolsonaro and was elected president for the third time, and returned to the presidential palace in January 2023. Now that he has won the 2026 election again and will usher in his fourth term, this politician, who was born as a factory worker, has once again become the international focus.
Lula is a well-known Brazilian politician. (French information photo)
Market worries about worsening Brazilian debt
According to a report by Bloomberg, investors originally bet on right-wing candidate Bolsonaro Jr. to win the election and expected the new government to promote fiscal consolidation and improve public finances. Therefore, there was a wave of gains in Brazilian financial assets before the election. However, Lula eventually won, quickly reversing the original electoral deal.
In this election, Lula defeated Flavio Bolsonaro with about 51.8% of the vote. This was an important victory for those who feared that the Bolsonaro family would return to power, the judicial system would be liquidated, and environmental policies would be fully regressed.
However, "Reuters" pointed out that Brazil's public debt has increased by more than 10 percentage points during Lula's current term, and now exceeds 82% of gross domestic product (GDP), putting government financing costs under pressure. As statutory spending has continued to increase over the years, less than 8% of the federal budget can be adjusted freely, making it more difficult for the government to cut spending.
Market concerns were quickly reflected in financial assets. After the election results came out, Hong Kong media reported on the 26th that the Japanese-listed Brazilian stock market ETF plunged 16% during the session, setting the largest single-day intraday drop since the early days of the COVID-19 epidemic in 2020; the Chicago Mercantile Exchange (CME) Real currency derivatives contract quote was close to 5.55 to 5.60 per US dollar.
Brazil's inflation and high interest rates are equally difficult problems
After the election results came out on October 26, after the Brazilian stock market opened, the Bovespa index plunged more than 17% during the session, triggering a 30-minute trading halt. It ended up falling 28,474.33 points, or 13.88%, to close at 176,608.23 points.
In addition, Reuters reported that the Brazilian currency real depreciated nearly 12% against the U.S. dollar in early spot trading, setting one of the largest single-day gains and losses in history.
Analysts pointed out that all this was due to Lula's re-election. The election results surprised investors and worried that it would put greater pressure on the national debt.
In addition to the election results, Brazil already faces heavy interest payments. According to a Reuters report on October 29, Brazil’s interest payments for the 12 months as of September reached 8.99% of GDP, the highest level since January 2016; including the primary fiscal deficit, the nominal fiscal deficit reached 9.51% of GDP. Brazil's benchmark interest rate remains at 13.75%, and high interest rates further increase government borrowing costs.
"Reuters" analyzed that one of the biggest challenges for Lula's fourth term is how to improve government finances while maintaining social welfare and economic growth. During his campaign, he promised to maintain real increases in the minimum wage and expand some social welfare policies, but these measures may also increase long-term government spending.
On the other hand, the problems of inflation and high interest rates in Brazil are equally difficult. High borrowing costs not only increase the financing burden of enterprises, but also continue to increase household debt pressure. Although Lula hopes to create room for interest rate cuts through economic growth and fiscal discipline, if government spending continues to expand, market concerns about inflation and debt may be difficult to eliminate.
After the election, market concerns were quickly reflected in financial assets. Schematic diagram. (Bloomberg file photo)
Lula faces more conservative Congress
Politically, Lula will also face a more conservative Congress. "Reuters" analyzed that Bolsonaro's Liberal Party and its allies have considerable influence in both houses of Congress. If Lula wants to promote budget, tax and fiscal reforms in the future, he will inevitably need to negotiate with opposition forces.
Therefore, some analysts believe that although Lula's re-election has preserved the basic direction of Brazil's environmental institutions, electoral system and multilateral diplomacy, the Liberal Party has expanded in Congress, the conservatives have the upper hand in both houses, and Bolsonaro has refused to admit defeat and demanded the revocation of the results, leaving Brazilian democracy in a highly confrontational state.
In addition, the Brazilian government must also deal with issues such as tax reform, household debt and corporate investment. In particular, Brazil's consumption tax reform has been launched, and the new value-added tax system is expected to be implemented in January 2027. How it will be implemented in the future will also affect the burden on enterprises and consumers. Whether Lula can regain the trust of the financial market in his fourth term will be the most important issue in Brazil in the next few years.
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