Brazil's stock market lost more than $200 billion in value at Monday's open following President Luiz Inácio Lula da Silva's victory over Senator Flávio Bolsonaro in Sunday's runoff election. The result surprised investors and prediction markets, which had priced Bolsonaro at roughly 80% odds of winning.
The iShares MSCI Brazil ETF (EWZ), which tracks Brazilian equities, fell as much as 26% from Friday's close before settling around 23% lower at $32.84 by mid-morning. Brazil's benchmark Ibovespa index declined as much as 17% to approximately 170,000 points, while the dollar strengthened as much as 12% against the real.
The São Paulo exchange halted trading for 30 minutes after the Ibovespa fell 10%, triggering its first circuit breaker since the COVID-19 pandemic. Circuit breakers are automatic pauses designed to slow panic selling, though the index continued declining after trading resumed.
Lula won with 51.79% of valid votes to Bolsonaro's 48.21%, a margin of approximately 4.4 million votes according to Brazil's Superior Electoral Court. The outcome defied both prediction markets and polls, which had shown a competitive race. Polymarket gave Bolsonaro an 82% chance of winning the day before the vote, while Kalshi had him near 80% on Sunday morning.
Investors had positioned for a Bolsonaro victory after he finished first in the October 4 first round with 47.03% of valid votes to Lula's 45.16%. The Ibovespa gained 7.85% the following day as traders bet Bolsonaro would tighten public finances and enable lower interest rates. Monday's decline erased those gains and left the index about 11% below its October 2 close.
Bolsonaro said Sunday night he does not recognize the election result and will seek court annulment, reversing an August pledge to respect the outcome. He objected to Supreme Court Justice Cristiano Zanin's decision to extend voting until 7 p.m. at Lula's campaign request, stating it altered the voting process.
