Brazilian assets suffered their worst day in years on Monday after President Luiz Inácio Lula da Silva won a fourth term, defeating Flávio Bolsonaro by 51.79 per cent to 48.21 per cent, a margin of about 4.4 million votes. Bolsonaro had led the first round by about two percentage points. Lula is the first candidate since 1989 to win a run-off after trailing in the first round.
The Ibovespa fell as much as 17 per cent, triggering a circuit breaker on the B3 exchange at 10.03am Brasília time, its first since the pandemic sell-off of early 2020. The real weakened from about R$4.99 to R$5.60 per dollar. Investors had positioned heavily for a Bolsonaro victory, and prediction markets had given him about an 80 per cent chance hours before polls opened.
"The outcome caught most of the market by surprise," Daniel Pompiani, an analyst at UBS, told clients. JPMorgan reportedly cut its recommendation on Brazil's currency and rates to market-weight from overweight. Peter Varga, a portfolio manager at Erste Asset Management, said the new government would have to address the country's fiscal problems: "There is no vacation time for the next four years."
Result disputed
Bolsonaro has not conceded and says he will seek annulment, citing a two-hour extension of voting ordered by Supreme Court Justice Cristiano Zanin. The Superior Electoral Court certified the result and found no irregularities in the count.
