Investors in a panic after da Silva's victory in the Brazilian presidential elections - Bloomberg The victory of the current Brazilian president, Luiz Inacio Lula da Silva, provoked a sharp negative reaction in the financial markets, and caught investors who were counting on a victory for the right-wing candidate Flavio Bolsonaro by surprise. According to the results of the second round on October 25, Lula received about 51.8% of the votes against 48.2% for his opponent. The first signals from foreign markets indicated a widespread sell-off in Brazilian assets: an exchange-traded fund that tracks the country's stock market lost up to 16% during trading in Japan, and currency derivatives reflected a sharp weakening of the real. Market participants did not rule out such a strong drop in the Ibovespa index that the stock exchange would have to temporarily suspend trading. The main reason for investors' nervousness is concerns about the government's future fiscal policy. The market expected Bolsonaro's victory to lead to cuts in government spending and increased fiscal discipline, which would reduce borrowing costs. However, Lula's return to a new presidency raised doubts about the authorities' ability to contain the growth of the public debt, which already exceeds 82% of GDP. Additional pressure creates the need to finance programs and social investments at the same time without allowing further deterioration of public finances. Amid the uncertainty, investors are reconsidering previous bets on a stronger real and growth in Brazilian stocks, which increases the risks of capital outflows and higher yields on debt instruments. In the near term, markets will focus on the new government's ability to restore investor confidence and present a credible plan to stabilize public finances. Another factor of uncertainty is Bolsonaro's declaration of the need to annul the results of the vote, which creates the risk of a prolonged political conflict.

Investors in a panic after da Silva's victory in the Brazilian presidential elections - Bloomberg The victory of the current Brazilian president, Luiz Inacio Lula da Silva, provoked a sharp negative reaction in the financial markets, and caught investors who were counting on a victory for the right-wing candidate Flavio Bolsonaro by surprise. According to the results of the second round on October 25, Lula received about 51.8% of the votes against 48.2% for his opponent. The first signals from foreign markets indicated a widespread sell-off in Brazilian assets: an exchange-traded fund that tracks the country's stock market lost up to 16% during trading in Japan, and currency derivatives reflected a sharp weakening of the real. Market participants did not rule out such a strong drop in the Ibovespa index that the stock exchange would have to temporarily suspend trading. The main reason for investors' nervousness is concerns about the government's future fiscal policy. The market expected Bolsonaro's victory to lead to cuts in government spending and increased fiscal discipline, which would reduce borrowing costs. However, Lula's return to a new presidency raised doubts about the authorities' ability to contain the growth of the public debt, which already exceeds 82% of GDP. Additional pressure creates the need to finance programs and social investments at the same time without allowing further deterioration of public finances. Amid the uncertainty, investors are reconsidering previous bets on a stronger real and growth in Brazilian stocks, which increases the risks of capital outflows and higher yields on debt instruments. In the near term, markets will focus on the new government's ability to restore investor confidence and present a credible plan to stabilize public finances. Another factor of uncertainty is Bolsonaro's declaration of the need to annul the results of the vote, which creates the risk of a prolonged political conflict.