The shock reelection in Brazil of leftist incumbent Luiz Inácio Lula da Silva, which polls — and Wall Street prognosticators — had pegged as unlikely, has left markets in disarray. An ETF tracking Brazilian stocks in New York was down 26% pre-market, while a Tokyo-based equivalent dropped 15%. “It’s going to be a tough day. The market will reprice everything,” an analyst told Bloomberg. “Everyone was caught by surprise.”
Investors had largely bet on a win by right-wing opponent Flávio Bolsonaro, the son of convicted former President Jair Bolsonaro, who had promised to shore up the country’s public finances — under Lula, who has championed welfare and state-led investment, Brazil’s public debt has gone up 10 percentage points to more than 82% of GDP, and the country faces huge fiscal challenges and cooling economic growth. Bolsonaro has already challenged the results, prolonging the political flux and adding fresh pressure to the currency.