Brazilian stocks, bonds and the real plunged on Monday, October 26, after President Luiz Inácio Lula da Silva won a surprising final round of voting, prompting investors to pull back from investments based on expectations of a government more focused on controlling spending.
Lula defeated right-wing challenger Flávio Bolsonaro. Lula won 51.8% of valid votes, compared with Bolsonaro’s 48.2%. Bolsonaro had led in the first round.
The Ibovespa, Brazil’s benchmark stock index, closed 13.88% lower at 176,608 points. It was the index’s steepest one-day fall since market turmoil during the 2020 pandemic. The dollar rose 8.21% against the real to R$5.40 by the end of the session.
The real had fallen even more sharply earlier in the day. Trading on the São Paulo exchange stopped for 30 minutes after the Ibovespa fell enough to trigger an automatic pause in trading. The Treasury canceled scheduled auctions of government bonds.
Officials were working to limit the market disruption. Investors had bought Brazilian assets after Bolsonaro led in the first round, expecting stricter control of spending and lower borrowing costs. Lula’s win renewed concerns about public debt, government spending and whether investors would trust future government finance plans.
Markets will now look for signs of how Lula’s government plans to balance its social priorities with efforts to reassure investors.