Luiz Inácio Lula da Silva has won an unprecedented fourth term as Brazil's president, overturning a first-round loss to beat Senator Flávio Bolsonaro. The outcome triggered a sell-off in Brazilian assets as markets were caught off guard.
Lula took 51.8% of valid votes to Bolsonaro's 48.2%, according to the Superior Electoral Court, with nearly all ballots counted on Sunday.
The results are also historic as it's the first time since Brazil returned to direct elections in 1989 that a candidate has won the final runoff after losing in the first round.
Markets jolted by Lula win
Brazilian stocks plunged following the unexpected victory, unwinding some of the rally from the first-round result three weeks earlier. That reflected expectations of more market-friendly policymaking by Bolsonaro and broader jitters around Brazil's debt and spending.
The iShares MSCI Brazil ETF was 25% lower at 10:30 a.m. ET, while trading on Brazil's stock exchange was halted by an automatic circuit breaker.
U.S.-listed Brazilian companies also sold off. Energy giant Petrobras was last seen down 16%, banking group Itaú Unibanco fell 20%, brewer Ambev shed 10.3%, and mining firm Vale fell 1.2%. Aircraft manufacturer Embraer was 5% lower.
The Brazilian real meanwhile dropped 10.5% against the U.S. dollar to its lowest level since December 2025, according to LSEG data.
The Brazilian Treasury on Monday canceled auctions of inflation-linked and fixed-rate government bonds that had been scheduled for Oct. 27 and Oct. 29, saying in a notice that it would "continue to monitor market conditions and act to ensure the proper functioning of the government bond market and other related assets." An auction of Treasury Financial Bills scheduled for Oct. 27 will go ahead.
Citi analysts said Monday that investors were concerned about "fiscal policy, state-owned enterprises, and the broader reform agenda" under Lula, who began his current term on Jan. 1, 2023. He was previously Brazil's president from 2003 to 2011.
Banking stocks will be hit by the risk that interest rates remain higher for longer, delaying the normalization of banks' asset quality, Citi analysts also said.
Lula's leadership has seen mounting public debt driven by double-digit interest rates, elevated costs of servicing the debt, and rigid mandatory spending. He has pledged to extend the Bolsa FamÃlia social welfare system and reduce the working week without pay cuts.
"The fiscal side has always been Brazil's Achilles heel, and a 7-8% budget deficit and 70% net debt-to-GDP ratio leave Brazil vulnerable in a global bond sell-off," Chris Turner, ING's head of EMEA and Latam research, said in a note.
"Instead of fiscal consolidation under Bolsonaro, Brazilian assets are instead going to have to contend with Lula's campaign pledges, including a shorter working week," Turner said.
Alejo Czerwonko, a fellow at the Atlantic Council, said Lula's administration will likely extend the more "gradual approach" to stabilizing its debt trajectory, building on the existing fiscal framework while seeking to preserve public investment and social spending.
Goldman Sachs analysts said they expect "modest measures" to contain the government's spending growth, alongside further increases in an already high tax burden, while major structural reforms remain unlikely.
Vote tensions
Financial markets will also be monitoring how quickly Bolsonaro accepts the result or "allows the constitution to run its course," ING's Turner added.
Bolsonaro refused to concede defeat overnight, saying he would seek to have the result annulled, Reuters reported. He also said a ruling by a supreme court justice to extend voting for two hours was "unacceptable," according to the outlet.
The election process was marred by allegations of voter suppression, with Lula's campaign reporting suspended public transportation in some key areas. Supreme Court Justice Cristiano Zanin extended voting by two hours. Bolsonaro's campaign had also requested an extension, citing heavy rains that shut polling stations in the south, a right-wing stronghold.
The victory of the 80-year-old leftist, who had trailed in the first round, blocks a rightward shift in Latin America that U.S. President Donald Trump has backed.
Trump called Bolsonaro's lead in the first round "a very, very big victory."
He would have preferred a Brazilian president in closer alignment to U.S. foreign policy as Washington makes efforts to project U.S. power across the Americas, according to Daniela Portella Sampaio, senior research fellow for Latin American Security at the U.K. think tank Royal United Services Institute.
Lula, who has publicly sparred with Trump, is set to govern from 2027 to 2030, facing a Congress where Bolsonaro's Liberal Party holds the largest bench in decades, and with a substantial public debt that he would need to stabilize.
Leaders from across Latin America largely congratulated Lula's historic win.
Peruvian President Keiko Fujimori hailed Lula's victory in a post on X late Sunday, calling it a "democratic day" for the Brazilian people. Uruguay President Yamandú Orsi congratulated Lula over a call, calling the Brazilian president a "friend."
— CNBC's Matthew Tan contributed to this report.