Brasilien: „Schock für die Märkte“ – Lulas Wiederwahl sorgt für heftige Kursturbulenzen

The outcome of Brazil's presidential election, won by incumbent Luiz Inácio Lula da Silva, has caused significant market turbulence. Investors had largely anticipated a victory for challenger Flávio Bolsonaro, and they began selling Brazilian stocks in the morning. The foreign exchange market could also see a notable reaction. The iShares MSCI Brazil ETF, a major Brazilian exchange-traded index fund (ETF), dropped about 24 percent in the morning and fell to its lowest point since January.

Vale, one of the world's largest mining companies, had the largest weight in the ETF, followed by Nubank, Unibanco, and the oil giant Petrobas. Brazilian-listed stocks also saw a sharp decline in pre-market trading. BNP Paribas expert Stephan Kemper describes it as a "shock for the markets." Commerzbank expert Volkar Baur suggests that the investors' reaction may be "overstated," but could persist.

The leftist president Lula defeated Bolsonaro in a run-off, though Bolsonaro refused to accept the result, threatening to request the annulment of the election. Bolsonaro had previously led in the first round. With Lula's third term, the economy has grown on average by about three percent per year since 2023, with the unemployment rate at a historic low.

However, private and public debt have sharply increased recently. The government has mainly stimulated consumption, the main driver of the economy, with state subsidies. The budget deficit is around ten percent of the economy, and the debt-to-GDP ratio is higher than in most other large economies at 82.5 percent. At the same time, living costs have risen sharply.

The inflation rate is still within the central bank's tolerance band at 4.58 percent compared to the previous year, but at a level that troubles many citizens and businesses. The benchmark interest rate is 13.75 percent. Due to many daily necessities being paid for in installments in Brazil, many citizens are now as heavily indebted as never before.

The market reaction on Monday reflects investors' concern that this heavily debt-dependent policy will continue. The main signal for the markets should be a clear commitment to budget discipline, says Graham Stock, analyst at RBC Bluebay Asset Management. Commerzbank expert Baur believes that it now depends on how quickly Lula can convince the market of upcoming reforms.

President Lula will have to take individual measures for budget consolidation, also says Thierry Larose, portfolio manager at Vontobel. However, most investors doubt that these will be enough to restore debt sustainability. Brazil's leading index Bovespa had recently marked a series of new record highs. After Bolsonaro's victory in the first round, stock prices rose even more, as many analysts and banks recommended buying Brazilian assets in anticipation of a Bolsonaro win.

Government bond yields, however, reached their lowest level in two years. The Brazilian real has also gained noticeable value. In Asian trading, the currency has already noticeably strengthened. This movement is expected to continue as trading begins in Brazil and the United States. The profits gained since the first vote will likely be wiped out, predicts Vontobel expert Larose.