Key points

  • Lula’s re-election has unsettled Brazilian equities, but the market reaction may overstate its significance
  • High interest rates affect domestic firms, while exporters such as Vale depend more on global commodity prices
  • Our long-term view of Brazil rests on individual companies and global demand rather than election results

As with any investment, your capital is at risk.
Luiz Inácio Lula da Silva’s surprise re-election has disrupted a market that was increasingly positioned for political change. His victory on 25 October, with 51.8 percent of votes against Flávio Bolsonaro’s 48.2 percent, secured his fourth presidential term.

For investors, the immediate disappointment is the reduced likelihood of an early improvement in fiscal policy. That certainly warrants a measured reassessment of the portfolio’s Brazilian positions, but not the initial market tantrum.

Brazil’s fiscal position explains investors’ sensitivity. Banco Central do Brasil (“BCB”) figures put government debt at about 83 percent of GDP in August 2026, versus around 72% at the beginning of the current administration, high by emerging markets standards.

To stabilise government debt at current levels would require a fiscal adjustment to a surplus, a difficult course correction whatever the politics, given the high levels of mandatory spending versus discretionary spending.

All eyes will therefore be on the makeup of Lula’s economic team and especially the Minister of Finance. It may be that the savage reaction to Lula’s re-election in foreign exchange, bond and equity markets will suffice to instil fiscal discipline, despite some fairly extravagant spending pledges prior to the second round of voting. 

Find out more