exchange ·
Brazil Stock Market Falls 26% After Lula Da Silva Beats Bolsonaro
The iShares MSCI Brazil ETF (EWZ) experienced a decline of up to 26% following the electoral outcome where Lula da Silva defeated Flávio Bolsonaro.
This market reaction occurred after prediction markets had assigned a probability of around 80% to Bolsonaro's victory. Concurrently, the dollar appreciated by as much as 12% against the real.
The Brazilian stock market lost over $200 billion in value at the open on Monday. EWZ, which tracks Brazilian equities traded in New York, fell by up to 26% from Friday's close of approximately $42.60.
The São Paulo exchange, B3, initiated its first circuit breaker since the COVID-19 pandemic after the Ibovespa dropped 10% from Friday's closing figure.
Investors had previously anticipated a different result, especially after Bolsonaro finished first in the October 4 first round with 47.03% of valid votes versus Lula's 45.16%.
The divergence from market expectations was stark; Polymarket indicated an 82% chance for Bolsonaro, and Kalshi placed him near 80% on Sunday morning.
In response to the result, Bolsonaro stated on Sunday evening that he does not accept the outcome and intends to petition the courts for the election's annulment.
Lula secured the win with 51.79% of the vote against 48.21%, a margin totaling about 4.4 million votes, according to Brazil’s Superior Electoral Court.
The significant volatility observed in the market reflects the institutional reaction to a political shift that contradicted prevailing market sentiment regarding the electoral contest.
Why it matters
This political outcome has caused significant volatility in Brazilian markets, evidenced by the sharp drop in the iShares Brazil ETF and the jump in the dollar against the real. The threat of an election annulment introduces substantial regulatory and political uncertainty for investors watching Brazilian financial institutions.
