Brazil’s stock exchange halted trading Monday after shares plunged more than 10% at the open, triggering the market’s first circuit breaker since the COVID pandemic and wiping out nearly R$1 trillion ($200 billion) in value following President Luiz Inácio Lula da Silva’s surprise runoff victory. Bovespa futures dropped nearly 20% and the US listed iShares MSCI Brazil ETF slid as much as 28% in premarket trading, while the real slumped more than 8% against the dollar in spot trading and hit its daily limit in futures.
Investors had positioned for tighter fiscal policy under right wing challenger Flávio Bolsonaro after Lula deployed more than $60 billion in extra spending, welfare payments and debt forgiveness ahead of the vote, with gross debt forecast to climb 12 percentage points during his term to 83% of GDP alongside real interest rates above 8%. Following the result, Morgan Stanley warned Brazilian equities could fall 20% to 30% and the real could weaken to 5.60 or 6.00 per dollar, while JPMorgan downgraded the currency and Brazil’s domestic and international sovereign bonds.