Stock exchange drops 17.5% after Lula's re-election, but analyst sees end to electoral bet, not collapse of Brazil

The Ibovespa has accumulated a drop of 17.5% since the second round, after Lula's re-election, and the dollar jumped from R$4.99 to R$5.41, with the biggest daily increase since 2003. For the Investidor Sardinha channel, however, the movement does not indicate the end of Brazil, but the dismantling of a bet that lasted around three weeks: the so-called "trade Flávio".

The numbers from October 26th give the scale of the shock. According to the presenter, the Ibovespa fell by 13.9% and triggered the circuit breaker, a mechanism that interrupts business when the drop exceeds 10%. Country risk rose from 120 to 152 points. Foreigners, who had put around R$10 billion into the stock market after the first round, withdrew R$2.85 billion the day after the vote, and the outflow totaled R$6.8 billion on the 22nd, 23rd and 26th of October.

A broken bet

According to the presenter's reading, the market started to treat Flávio Bolsonaro's victory as certain after the first round, and the index went from 192 thousand to 207 thousand points. It is now at 169 thousand, around 12% below the level on the eve of the first round. He notes that, on August 20, when Lula was leading the polls by 48% to 39% and re-election was already priced in, the index was at 167 thousand points. The dollar, on that date, was worth R$5.18.

According to the channel, the companies and their balance sheets have not changed, as results are released every quarter. What changed was the price paid for them. The Ibovespa price-to-earnings ratio went from 10.5 to 10.1 times, around 10% below the historical average, and the price-to-book value ratio fell from 2.6 times, at its maximum, to 2.1 times. Aggregate corporate profit grew 30% in the second quarter of 2026, and the index's weighted dividend yield is 6.1%.

The losses were uneven. Among the biggest falls on October 26 were Cirela (44.8%), Vivara (27.8%), Natura (25.2%) and Eneva (15.3%), securities linked to retail and consumption, more sensitive to high interest rates. Exporting companies, with revenue in dollars, rose: Gerdau (5.7%), WEG (5.3%), Embraer (5.3%) and Suzano (4%). For the presenter, this is about "repricing", not collapse.

The risk that remains

The presenter emphasizes that Brazil is not free from problems. Gross debt is equivalent to 82.9% of GDP and, according to him, it should continue to rise. Until August, the government paid R$1.18 trillion in interest, equivalent to 8.86% of GDP. The federal government's gross debt totaled R$11.1 trillion in September. "The risk exists, it has a name, it is public debt," he stated.

In the macroeconomic scenario, he cited unemployment of 5.3%, inflation of 4.58% (within the target tolerance, but with the prospect of worsening), Selic of 13.75% after five consecutive cuts since March and predicted GDP growth of 2.2% by the IMF. Brazil's country risk, at 152 points, compares to 560 for Argentina, 94 for Mexico and 35 for the United States.

Regarding the Ministry of Economy, the presenter reported that, in reserved conversations in the market, the name of Fonteles, mentioned by Lula, is seen with less fear because he is considered a tax expert. According to him, the market sees it as the "least worst" within the scenario.

The channel also pointed out that, for the year, the Ibovespa still accumulates an increase of 4.45%. In previous elections, the stock market fell in the first week of trading and recovered in the following, but the presenter says he does not know whether this will happen again, and highlights that the falls this time are much greater.

Automatically translated from Portuguese.