Brazil markets plunge following Lula reelection

Brazilian financial markets experienced significant volatility following the reelection of President Luiz Inácio Lula da Silva. The Ibovespa index fell by over 18%, marking its worst weekly performance since the onset of the COVID-19 pandemic in March 2020. This downturn triggered a circuit breaker on the B3 exchange during the first trading session after the election.

Investors expressed heightened concerns regarding fiscal policy and public spending under the new administration. The US dollar strengthened by more than 9% against the Brazilian real, representing its largest weekly gain since the 2008 global financial crisis. Additionally, long-term interest rates surged as market participants reassessed structural risks and the country's debt-to-GDP ratio, which exceeds 80%.

The sell-off heavily impacted small-cap stocks, which saw a record weekly decline of 32.79%. Total market value for companies listed on the B3 dropped by approximately R$ 963 billion to R$ 996 billion during the week. Analysts suggest that market stability will depend on the composition of the new economic team and future measures to balance government accounts.