The São Paulo Stock Exchange has recorded a strong drop of over 15% this Monday after the unexpected victory in the second round of the leftist candidate Luiz Inácio Lula da Silva, who won with 51.79% of the votes against the 48.21% obtained by the ultraconservative Flávio Bolsonaro.
The Bovespa index (B3) has plunged in the first minutes of trading to the area of 170,000 points, well below the 205,083 points with which the session concluded last Friday. Around 4:35 PM in Spain, the selective was moving at 173,888 points, representing a decline of 15.21%.
"After the first round, held in early October, the markets had largely discounted a victory for Bolsonaro; this suggests a significant correction in Brazilian assets and greater volatility, given that doubts persist regarding fiscal policy," explained the fixed income analyst at Julius Baer, Eirini Tsekeridou.
According to analysts, investors fear that the fragmentation of Congress, which has a majority leaning towards the center-right, will complicate Lula's ability to advance his legislative agenda and any attempt at substantial structural reform.
For his part, portfolio manager and analyst at Vontobel Thierry Larosa described Lula's return to power as "a surprise in itself," recalling that polls pointed to a very close result and that Bolsonaro had emerged victorious in the first round.
"We believe that Lula's government will have no choice but to undertake fiscal consolidation measures as well. However, most investors doubt that they will be sufficient to get debt sustainability back on track," the expert added.
In this context, Larosa has predicted a "significant readjustment" in sovereign debt yields, in the behavior of the Brazilian real, and in the DI curve, which stands for Depósitos Interfinanceiros, one of the main benchmark rates for the debt market in Brazil.
Impact on the Spanish market
The electoral result has also been reflected in the Spanish Stock Exchange. Mid-morning, Telefónica was down around 7.23%, to 3.17 euros per share, while Banco Santander fell about 4.6%, to 10.98 euros.
The correction in these values is linked to their high presence in Brazil and the rest of the region. The Spanish operator develops its activity in the country under the brand Vivo, while Santander has its main subsidiary outside of Europe there and ranks as the fifth largest commercial bank in the Brazilian market by asset volume.