Brazilian Stocks Set For Record Single-Day Crash After Lula Upset

Three weeks ago, Brazilian stocks had their best day in more than six years. On Monday, they are on track for their worst day ever.

The iShares MSCI Brazil ETF (NYSE:EWZ) traded at $31.83 in premarket trading, down 25.3% from Friday’s close, according to Benzinga Pro data.That would be the fund’s worst session since its launch in July 2000.

The downturn follows President Luiz Inácio Lula da Silva‘s Sunday run-off election victory. Da Silva won with 51.8% of the votes, ahead of Flávio Bolsonaro‘s 48.2%.

“Lula has won the election; restoring fiscal credibility will be the harder task,” Andrés Abadía, chief Latin America economist at Pantheon Macroeconomics, said in a Monday note.

Bolsonaro Bounce Meets Reality

Three weeks earlier, Bolsonaro had led the first round 47.0% to 45.2%. At the time, EWZ jumped 12.5% on Oct. 5—its biggest one-day gain since March 2020. The fund then attracted $4.09 billion of net inflows between Oct. 1 and Oct. 23, equal to 29.7% of its assets under management, according to etf.com/FactSet data.

Of that, $1.66 billion arrived in the week to Oct. 16 alone. EWZ had gained 11.3% over the month going into the vote.

That positioning is now unwinding in a single session.

A single-day drop could also wipe out almost the entire 2026 rally. EWZ ended Friday up 34% for the year. At Monday’s premarket price, it sits barely above its Dec. 31 close of $31.77.

The current record is a 23.1% plunge on March 16, 2020, at the height of the pandemic panic. The second-worst came on Oct. 15, 2008, when the ETF lost 19.6%.

Date	EWZ daily change	What happened
Mar 16, 2020	-23.09%	Covid-19 market crash
Oct 15, 2008	-19.63%	Global financial crisis
Mar 12, 2020	-16.64%	Covid-19 market crash
May 18, 2017	-16.33%	Michel Temer recording scandal
Mar 18, 2020	-15.45%	Covid-19 market crash

iShares MSCI Brazil ETF daily price change since 2000. Source: TradingView

The ADR Wipeout

The selloff didn’t just reach the large banks. It remained concentrated in the stocks that had rallied hardest on expectations of a Bolsonaro victory.

• Banco Bradesco S.A. (NYSE:BBD) was down 31.5%
• Itaú Unibanco Holding S.A. (NYSE:ITUB) fell 26.6%.
• XP Inc. (NASDAQ:XP) was down 48.7% to $15.60
• StoneCo Ltd. (NASDAQ:STNE) fell 37.0%
• Inter & Co. Inc. (NASDAQ:INTR) lost 34.1%
• PagSeguro Digital Ltd. (NYSE:PAGS) dropped 31.8%
• Nu Holdings Ltd. (NYSE:NU) slid 25.8% to $11.24.
• Petrochemical producer Braskem S.A. (NYSE:BAK) dropped 31.2%, and
• São Paulo water utility Sabesp (NYSE:SBS) lost 26.6%.
• The iShares MSCI Brazil Small-Cap ETF (NASDAQ:EWZS) was down 33.7%.

No Brazilian ADR appeared among the premarket gainers.

October 2002: When Lula Was The Risk

There is a historical rhyme here, and it runs in the opposite direction.

In October 2002, Brazilian assets collapsed on the fear that Lula would win his first presidency. The real hit: record lows and sovereign spreads blew out before he had even taken office.

He then governed with an orthodox finance ministry, and markets spent years repricing the “Lula risk” away.

This time, Abadía expects the real to weaken, local yields to rise and equities to fall as election positions unwind. In his view, domestic rate-sensitive companies and state-controlled firms are the most exposed, while “exporters could benefit from a weaker BRL.”

The premarket tape is following that script almost line by line. Fintechs, banks and utilities lead the declines.

The harder question is what brings investors back.

According to Abadía, rising mandatory expenditure, elevated debt-servicing costs and social spending commitments leave Lula little room for meaningful consolidation.

Investors, he said, will need concrete measures to contain spending and stabilise public debt, not fresh assurances about fiscal targets.

Congress adds another layer. Bolsonaro’s Liberal Party holds 121 seats in the lower house and 28 in the Senate, leaving Lula dependent on the Centrão, the bloc of centrist parties, for any spending reform.

That congressional map cuts both ways. A stronger right could block further fiscal expansion, but it could just as easily block the consolidation investors are asking for.

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