Brazilian Markets Tumble After Lula Election Win, Stocks Fall 27%

Brazilian assets plunged in overseas markets Monday after Luiz Inácio Lula da Silva defeated Flávio Bolsonaro in the presidential election, with a Brazilian stocks ETF in New York falling 27% in pre-market trading. Currency derivatives indicated the real trading at R$5.55 per dollar, suggesting a drop of over 10% from Friday's close of R$4.99. Shares of XP and Itaú Unibanco fell at least 26% in US trading, while Santander and Telefónica dropped over 5%. Trading desks in São Paulo expect possible circuit breakers if the Ibovespa falls 10%. Investors had largely positioned for a Bolsonaro victory after his first-round lead attracted billions in foreign flows. Lula won 51.79% of the vote, and markets fear he will not pursue the fiscal austerity needed to reduce interest rates, with Brazil's public debt above 80% of GDP.