Brazilian assets fall in early trading after Lula’s re-election

Brazil’s financial markets faced a volatile start on Monday after Luiz Inácio Lula da Silva won re-election, with early losses in a Tokyo-traded Brazilian share fund and futures for the real. The São Paulo stock exchange was due to open later in the day, so the overnight moves did not yet show how its main market would respond.

Reuters reported that the Nomura NF Ibovespa Link exchange-traded fund fell 15% in Asian trading, while November futures for the Brazilian real dropped 10%. Investors had positioned for a shift to the right after Flávio Bolsonaro finished first in the election’s opening round, Reuters said.

Brazil’s Superior Electoral Court said Lula won Sunday’s run-off with 51.79% of valid votes, against 48.21% for Bolsonaro. Lula, 80, begins a fourth presidential term.

The market reaction reflects investor concerns about the government’s fiscal plans, Reuters reported. Lula’s team aims to achieve a primary budget surplus of about 1.3% of gross domestic product by 2030, but public debt exceeds 82% of GDP and pensions and other legally required spending constrain possible savings.

Investors are watching how Lula’s government plans to balance debt reduction with social programmes and investment. Reuters quoted market analysts as saying that the choice of finance minister and the 2027 budget would be early signals; the government’s longer-term fiscal approach will also matter to borrowing costs.