Brazil Stock Market Plummets 17% Following Lula's Fourth Term: Why?

[Anchor]

Although President Lula da Silva secured a historic fourth term by winning the Brazilian presidential election, the financial market was thrown into shock instead. The stock market plummeted 17% and the exchange rate soared sharply.

Reporter Lee Gang analyzes why there is such a sharp contrast between political victory and market anxiety.

[Reporter]

While the streets were filled with cheers over Lula's victory, the financial market opened the next morning to a completely different reality.

The Brazilian stock market crashed 17% right at the open, immediately triggering a circuit breaker to halt trading.

It was the first circuit breaker triggered in six years since the COVID-19 pandemic, and the market failed to recover by the closing bell.

The foreign exchange market was also shaken severely.

The exchange rate of the Brazilian real against the U.S. dollar surged 10.26% to trade at 5.498 reals per dollar, spiking more than 12% at one point during the session.

As futures bond yields maturing in January 2031 jumped by more than 3 percentage points, the Brazilian Ministry of Finance abruptly canceled a scheduled treasury bond auction out of concern over surging government borrowing costs.

This came as market concerns spread that President Lula's extended rule would lead to expanded subsidies and increased welfare spending, thereby swelling the national debt.

[Gilberto Braga / Brazilian Economic Analyst: The Lula administration announced substantial spending plans and made numerous pledges toward the end of the election. The costs for implementing these pledges will be reflected in next year's budget immediately.]

The disappointment of foreign capital fearing aborted investments also appears to have had an impact, as investors who had anticipated the victory of Bolsonaro—who pledged state-owned enterprise privatization and fiscal austerity—faced Lula's election instead.

However, some evaluations note that Brazil's GDP grew steadily during President Lula's past terms, and that his administration achieved economic successes in lowering poverty rates through support for low-income earners and minimum wage hikes.

Ultimately, whether Lula's fourth term succeeds or fails will likely depend on whether he can calm financial market concerns, properly manage the national debt, and achieve fiscal stability.

(Video Editing: Kim Byeong-jik, Design: Choi Jae-young)
※ Please note: This article was translated by AI and may contain errors.