Brazilian assets plunge in U.S. premarket trading after Lula's surprise election win
Shares of Petrobras and Brazil's biggest banks fell 20% or more in premarket trading after Luiz Inácio Lula da Silva defeated Flávio Bolsonaro, who is refusing to concede.
Brazilian assets sold off sharply in U.S. overnight and premarket trading on Monday after President Luiz Inácio Lula da Silva won a surprise fourth term, defeating Senator Flávio Bolsonaro in Sunday's runoff. With all votes counted, Lula took 51.8% of the vote. Bolsonaro, the son of former President Jair Bolsonaro and the first-round leader three weeks ago, refused to concede and called for the results to be annulled, alleging that voting rules had been changed.
State-controlled oil giant Petrobras fell about 21% in premarket trading as of just before 6:00 AM ET. The country's biggest banks were hit harder still: Itaú Unibanco fell 26%, and Banco Bradesco and Nu Holdings dropped as much as 23% to 29% earlier in the session. The iShares MSCI Brazil ETF, the largest U.S.-listed Brazil fund, plunged nearly 20% in overnight trading before paring its loss to about 18%. Ambev fell 19%, Vale 3.2% and Embraer 4%, and MercadoLibre was down about 11%.
The selling reverses a weeks-long rally built on expectations of a Bolsonaro victory and market-friendly reforms. Brazil's Bovespa index closed Friday about 7% above its level before the first round, having topped 200,000 points for the first time, and the real had strengthened almost 5% against the dollar, at one point breaking below 5 per dollar. Interest-rate futures had priced in tighter fiscal policy and, eventually, lower borrowing costs as Brazil contends with deteriorating public finances and elevated rates.
Lula now faces four years of slowing the growth of Brazil's debt while preserving social programs and public investment. His economic team is targeting a primary budget surplus, before interest payments, of about 1.3% of GDP. For investors, the central question is whether his more gradual approach to fiscal repair can still bring down borrowing costs; without that confidence, lenders could demand higher rates on government debt, compounding the fiscal burden.
