iShook Finance

Brazilian Assets Tumble After Lula Wins a Fourth Term as Flávio Bolsonaro Refuses to Concede

Brazil's real fell about 10% in Chicago futures and U.S.-listed Brazilian shares slumped after Lula beat Flávio Bolsonaro 51.79% to 48.21% in Sunday's presidential runoff.

Oct 26, 2026 - 07:21

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Brazilian assets sold off sharply in overnight and premarket trading after President Luiz Inácio Lula da Silva won a fourth term in Sunday's presidential runoff, an outcome that many investors had not positioned for. Lula took 51.79% of the vote to 48.21% for right-wing Senator Flávio Bolsonaro, a margin of 4.4 million votes, the BBC reported. Bolsonaro, the son of former President Jair Bolsonaro, has refused to recognize the result and said he will ask for it to be annulled, Reuters reported.

The election result

Lula, 80, trailed in the first round on October 4, when Flávio Bolsonaro received 47.03% of valid votes against 45.16% for the president, according to UOL. The BBC said Lula is the first president since Brazil's return to democracy to win an election after losing the first round, and the first in the country's history to secure a fourth term. The new term is set to begin on January 5 and run until 2030.

Voting was extended by two hours on Sunday evening after both campaigns made requests, according to the BBC. Bolsonaro questioned the decision, which Reuters said was issued by a Lula-appointed Supreme Court justice. "It is impossible to recognize the election results, given the circumstances under which things unfolded," he told journalists. Supreme Court President Kassio Nunes Marques confirmed Lula's victory and said the extension did not cause issues for the count, the BBC reported. Analysts cited by Reuters said the size of the margin makes an annulment unlikely.

How markets reacted overnight

With Brazilian exchanges closed on Sunday, the first reaction came offshore. The November Brazilian real contract on the CME in Chicago was down 9.97% at 10:30 p.m. Brasília time, equivalent to about 5.56 reais per U.S. dollar, UOL reported; an earlier reading of 5.5127 reais compared with a prior settlement of 5.0088. The iShares MSCI Brazil ETF (EWZ) was trading at $35.03 in overnight dealings, down 17.75% from Friday's close of $42.59, and a Tokyo-listed fund tracking the Ibovespa index was down 14.37% at 280 yen, according to the same report.

By 5:10 a.m. ET on Monday, U.S.-listed Petrobras shares were down roughly 22% in premarket trading, while Itaú Unibanco, Banco Bradesco and Nu Holdings were down between 23% and 29%, Investing.com reported. The same report listed declines of 10.9% for MercadoLibre, about 18% for Ambev, 3.6% for Vale and 3.8% for Embraer, with EWZ down more than 27%. In a later Reuters tally, published by UOL, Itaú was down 28.5%, Bradesco 26.8%, Nubank 24% and Petrobras 20%.

Ahead of the open in São Paulo, analysts cited by Seu Dinheiro flagged the possibility of a circuit breaker, the B3 exchange mechanism that halts trading for 30 minutes if the Ibovespa falls 10% from the previous close.

What markets had priced in

The size of the moves reflects how far prices had run on expectations of a change in government. The Ibovespa closed Friday up 0.47% at 205,082.56 points, Seu Dinheiro reported. Since Flávio Bolsonaro's first-round lead three weeks ago, the index had risen nearly 7% and the real had strengthened almost 5% against the dollar, while interest-rate futures pointed to expectations that tighter fiscal policy would eventually allow borrowing costs to fall, according to Investing.com. Reuters noted that the Ibovespa posted its biggest one-day gain since March 2020 on October 5 and had risen more than 27% this year.

William Jackson, chief emerging markets economist at Capital Economics, told Reuters that Lula's surprise win would frustrate hopes for reforms to improve public finances and strengthen growth prospects. He added that interest-rate cuts at two meetings this year no longer looked likely, given higher fiscal risk and a weaker real.

The fiscal backdrop

Public debt already exceeds 82% of gross domestic product, and mandatory spending on pensions and other legally protected programs leaves limited room for cuts, according to Investing.com. Lula's economic team is targeting a primary budget surplus, before interest payments, of about 1.3% of GDP by 2030, the report said.

The president will also face a more hostile legislature. The right-wing bloc grew from 248 to 260 seats in the Chamber of Deputies and from 32 to 48 in the Senate, Seu Dinheiro reported. Gustavo Sung, chief economist at Suno Research, told UOL that his firm expects the dollar to hold around 5.40 reais in 2027, with more persistent inflation and less room to cut the Selic benchmark rate.

The selling was concentrated in Brazilian assets. Elsewhere, Dow Jones Industrial Average futures were up 209 points, or 0.4%, as of 7:07 a.m. ET, and Brent crude futures were down 1.7% at $114.77 a barrel, CNBC reported.