Brazilian stocks plunge by as much as 50% after Lula's election win

Some Brazilian stocks plunged by up to 50 per cent or more following president Luiz Inácio Lula da Silva’s surprise reelection on Oct. 25.

The 80-year-old sitting president won 51.79 per cent of the votes.

The sharp fall in the markets when the election outcome became clear was attributed to investors' hopes for a pro-business, fiscally conservative shift getting dashed.

The iShares MSCI Brazil ETF, for example, fell by about 20 per cent overnight.

Why are investors pulling out?

Investors worry that Lula’s fourth term will be characterised by high public spending, expanding social benefit, and state-driven consumption, rather than strict budget restraint, Reuters and Bloomberg reported.

The plunge was also analysed to be a market correction, following a spike in inflow of funds in anticipation of a win by conservative rival, Flávio Bolsonaro.

Bolsonaro had promised deregulation and spending cuts, which should boost business and asset prices.

Bloomberg had reported that some Brazilian stocks fell as much as 50 per cent.

Background

Bolsonaro was in the lead in the first round of voting, but Lula narrowly won re-election in Sunday's runoff vote.

Bolsonaro, a senator and the eldest son of former president Jair Bolsonaro, lost by more than twice his father's losing margin in 2022.

This marked a sharp reversal in Bolsonaro's initial lead.

Lula, a left-leaning, working class president, is now going to serve a historic fourth term.

The win is a continuation of his political comeback.

He was jailed 580 days from 2018 to 2019 on corruption charges that were later overturned.

That allowed him to beat Jair Bolsonaro in the 2022 election.

The latest win also defied polls and halted a wave of right-wing election victories across Latin America.