Brazil Markets Crater After Socialist Lula’s Shock Victory; Bolsonaro Seeks To Annul Runoff

Brazilian Senator Flávio Bolsonaro said overnight that he would seek to annul the presidential runoff, challenging a last-minute, two-hour voting extension granted at the request of socialist President Luiz Inácio Lula da Silva’s campaign. The order came from Supreme Court Justice Cristiano Zanin, Lula’s former personal attorney, whom the president appointed to the high court. Lula later won the runoff after Bolsonaro finished first in the first round earlier this month, setting the stage for a legal challenge to the court’s questionable intervention.

BREAKING: Flávio Bolsonaro: It is impossible to recognize the election results in the context of how these things happened. We are going to use our legal team, we are going to request the annulment of these elections. https://t.co/PVtKvb9b3M

— Clash Report (@clashreport) October 26, 2026

According to the electoral court, Lula was re-elected for a record fourth term on Sunday, taking 51.76% of the vote to Bolsonaro’s 48.24% in a surprise outcome.

Via Bloomberg:

Bolsonaro said, “It is impossible to recognize the election outcome given the circumstances in which all of this took place,” adding, “We will pursue legal action and seek to have the election annulled.”

@zerohedge @jeffreytucker Pretty weird …

— Elon Musk (@elonmusk) October 26, 2026

Trump:

JUST IN: Trump threatens to tariff Brazil unless they redo their election

— Spencer Hakimian (@SpencerHakimian) October 26, 2026

Greta received her talking points:

🇸🇪🇧🇷 Greta has a take on the Brazilian election: Lula = good for the planet Anyone else = literal apocalypse LMAO 🤣🤣🤣 Writer: Samuel https://t.co/5jNhSlYxSM

— Mario Nawfal (@MarioNawfal) October 25, 2026

The questionable voting-extension ruling came minutes after polling stations nationwide were scheduled to close at 5 p.m. local time. Zanin later clarified that it applied only to polling stations that remained open.

Soros Jr happy https://t.co/RGCWgVyZ5s

— zerohedge (@zerohedge) October 26, 2026

UBS analyst Justin Wensek told clients, “Flavio’s annulment request is unlikely to hold water given his campaign also asked for additional time in specific states that were impacted by adverse weather.”

The focus now shifts to Brazilian markets, where the “Bolsonaro trade” has reversed and shares of companies across the banking, steel and metals, and oil and gas sectors have plunged:

BANKS, FINANCIAL FIRMS

US-listed shares in lenders fall: Banco Bradesco -27%, Itau Unibanco Holding -28%, NU Holdings -22%, Inter & Co. -32%, Banco Santander (Brasil) -11%

Among other financial firms: PagSeguro Digital -28%, StoneCo -31%, PicS -27% 

STEEL, METAL & MINING 

Among movers: Companhia Siderurgica Nacional -13%, Vale -7.7%, Gerdau S.A. -14% AERO, 

OIL & GAS AND OTHER SECTORS

Among other movers: XP Inc. -39%, Ambev -19%, Embraer -2.6%, MercadoLibre -2.6%, Telefonica Brasil -16%, Companhia Energetica de Minas Gerais -15%, Companhia Paranaense de Energia -17%, Petroleo Brasileiro -19%, Ultrapar Participacoes -18%, Cia de Saneamento Basico do Estado de Sao Paulo (SABESP) -22%, TIM S.A. -17%

iShares MSCI Brazil ETF (EWZ) cratered 27% in premarket trading on the surprise Lula win. 

UBS analyst Wensek added more color on the significant repricing of Brazilian assets as the market readjusts to four more years of socialist Lula: 

Brazil’s fiscal outlook again takes center stage, as debt/GDP trajectory resumes its ominous path. The desk expects a significant re-pricing of Brazilian assets on Monday, as the market adjusts to another four years of Lula, with USDBRL potentially at 5.3 Monday.

Note that FX didn’t react that much in the first round; it was more about rates and equities. EM strategist Roque Montero thinks USDBRL could drift to 5.5-5.6 by end-2026 given December negative seasonality. 

In rates, Roque expects a 100-150bp move higher. Equities could correct by 10-15% based on latest EWZ reaction. Among stocks, watch for selling pressure/rotation out of SOEs, high beta and rate sensitive names, into defensive, USD leveraged, cash flow generative names. If there is a silver lining, Lula will have to build a coalition to pass key policy initiatives through a more right-leaning Senate and Lower House.

Beyond Bolsonaro’s possible court battle to challenge the results, Brazil now faces a financial reckoning as public debt has climbed to 83% of GDP from 71.7% when Lula and the socialists took office in January 2023, leaving traders to digest the continued fiscal deterioration. 

ING analysts see a 5%-7% slide in real terms and double-digit stock losses today. The repricing is already underway offshore: Brazil’s dollar bonds were among the worst performers in emerging markets, with yields on notes due in 2037 jumping 19 basis points to 6.44%.

What Goldman analysts expect from here: 

Rates and equities will see the most damage.  In rates, where we settle will depend on damage control on fiscal.  There are people close to the president advocating for fiscal consolidation given its impact on financing cost.  Market will closely monitor Finance Minister announcement, and the details of fiscal consolidation.  Adjustments involving Constitutional spending cap/ fiscal target would be well received, and trim on specific social programs without longer term commitment likely won’t calm market.  If we see credible fiscal reform, BCB can continue its easing path given the still-very-high real rate, so front-end-to-belly receiver could be attractive again after the correction.  Equity market will likely price out optimism around structural reforms to improve SOE/ business environment.

USDBRL – expect to settle in new range of 5.4-5.8.  This will limit BCB’s ability to accelerate its pace of easing.

Brown Brothers Harriman’s Elias Haddad sees a buying opportunity emerging from the selloff.