Brazil markets tumble overnight as Lula's shock win stuns investors

Brazilian financial markets tumbled in overnight trading after Luiz Inácio Lula da Silva won re-election in Sunday’s presidential runoff, with investors caught positioned for a victory by his rival Flávio Bolsonaro.

The iShares MSCI Brazil ETF fell 19.63% in after-hours trading on Sunday to $34.23, down $8.36 from its Friday close of $42.59, el-fondo reports. TheStreet likewise put the ETF down more than 17% in overnight trading, the difference reflecting different overnight snapshots.

The Brazilian real dropped 10.02% in CME futures trading in Chicago on Sunday night, with the November contract pointing to an implied rate of 5.56 reais to the dollar for Monday, el-fondo reports. São Paulo’s Bovespa cash market had yet to open when the overnight moves were recorded.

Lula won 51.76% of valid votes to Bolsonaro’s 48.24% with 99.78% of votes counted, official results cited by el-fondo show. Traders had piled into Brazilian assets expecting Bolsonaro to win and commit to spending cuts; Lula has promised a fiscal adjustment without saying how he will deliver it, while insisting he will not sacrifice his social agenda, according to TheStreet.

Investors are focused on Brazil’s fragile fiscal outlook, with public debt above 82% of gross domestic product pushing borrowing costs higher, TradingView reports.