Brazilian stocks fall after Lula’s victory amid fears of higher deficits

Why are Brazilian stocks falling? 🇧🇷

After the first round, right-wing candidate Flávio Bolsonaro was leading, and investors began betting on his victory. iShares’ Brazilian ETF EWZ surged 14%. But left-wing incumbent president Lula ultimately won by 51.8% to 48.2%.

Why did the market want Bolsonaro?

- He promised to reduce the deficit, meaning spending less than the government collects

- Brazil has high public debt and, as a result, high interest rates

- Less spending = less debt = the central bank can cut rates

- Lower rates = cheaper loans for companies and higher stock valuations

So why is the market falling today? The market expects the opposite from President Lula: more spending, higher deficits, and interest rates that won’t be coming down anytime soon.

A left-wing budget comes with a price tag. Investors paid it as soon as the market opened today.