Brazil election 'tsunami' sends currency and stock market tumbling

Updated: 11:00 EDT, 26 October 2026 The Brazilian currency and stock market tumbled as the surprise re-election of Left-wing president Luiz Inacio Lula da Silva sparked panic among investors.The real dropped by nearly 12 per cent against the US dollar when trading began on Monday after Lula, 80, clinched a historic fourth term in a tight election on Sunday.The benchmark Bovespa stock market index fell 10 per cent at the opening in Sao Paulo – triggering a circuit breaker safety mechanism that forced trading to be halted.In New York, an exchange traded fund tracking Brazilian stocks slumped as much as 26 per cent as investors expecting right-wing challenger Flavio Bolsonaro to win and usher in a period of fiscal responsibility dumped their holdings.With Brazilian bond yields also rising, Jerson Zanlorenzi, head of equities and derivatives trading at BTG Pactual in Sao Paulo, described the election result as ‘a tsunami that will hit all Brazilian assets’.He added: ‘We’ll have at least one or two weeks of significant uncertainty and volatility, with no room for a breather. When in doubt, the market prefers to take profits, and only then run the numbers and assess the next steps.’ Brazil's President Luiz Inacio Lula da Silva waves a Brazilian flag as he addresses supporters after his election victoryJim Reid, head of global macro at Deutsche Bank in London, added: ‘The result wrongfooted a market that had increasingly priced a Bolsonaro victory. Investors had been anticipating a better chance of fiscal consolidation.’Brazilian assets had made steady gains after Bolsonaro, the son of jailed former president Jair Bolsonaro, won the first-round of voting earlier this month.Bolsonaro was seen as more market-friendly than Lula, with investors hoping he would tackle Brazil’s large budget deficit and bring down double-digit interest rates.But Leftist leader Lula won more than 51 per cent of the vote in Sunday’s run-off in a dramatic turnaround that defied polls and expectations on financial markets.It also put the brakes on a wave of Right-wing election victories across Latin America and came after a string of lavish spending commitments – including on welfare – by Lula on the campaign trail.His plans will fuel fears that Brazil’s finances are on an unsustainable path with the budget deficit at pandemic-era levels around 10 per cent of GDP and the national debt at over 80 per cent – a level considered high for an emerging economy.‘Investors want a clear and credible commitment to fiscal discipline,’ said Alejo Czerwonko, chief investment officer for emerging markets at UBS Global Wealth Management. ‘We expect sentiment to stay weak until a clear fiscal plan emerges.’Lale Akoner, global market strategist for eToro, said: ‘Lula’s re-election could keep Brazilian stocks and the currency under pressure in the near term, but the sharp sell-off may also create opportunities for investors. Markets had largely expected a Bolsonaro victory, so part of the reaction reflects investors rapidly reversing their positions rather than a sudden deterioration in Brazil’s economy.‘We expect volatility to continue, particularly as concerns over government spending could keep borrowing costs high. Banks, retailers and companies dependent on Brazilian consumers may face pressure, while exporters earning US dollars could benefit from a weaker currency.‘For investors, we would avoid rushing to buy the dip, but equally, we would not write off Brazilian assets. History shows that markets can recover quickly from political surprises once uncertainty fades. Strong companies with healthy finances could become attractive at lower prices, particularly if Lula signals greater restraint on spending. The key is to distinguish between businesses facing lasting challenges and those being sold simply because investors are nervous.’DIY INVESTING PLATFORMSAJ BellAJ BellEasy investing and ready-made portfoliosHargreaves LansdownHargreaves LansdownFree fund dealing and investment ideasinteractive investorinteractive investorFlat-fee investing from £4.99 per monthFreetradeFreetradeInvesting Isa now free on basic planTrading 212Trading 212Free share dealing and no account feeAffiliate links: If you take out a product This is Money may earn a commission. These deals are chosen by our editorial team, as we think they are worth highlighting. This does not affect our editorial independence.Compare the best investing account for you