The reelection of current Brazilian President Luiz Inácio “Lula” da Silva, who defeated Flávio Bolsonaro in the October 25 runoff, triggered a schism in Brazil’s financial market on Monday. The EWZ, a Wall Street exchange-traded fund that aggregates the most significant mid- and large-cap companies on the Brazilian stock exchange, experienced a decline of 24%. Large-cap stocks are experiencing declines that readily surpass double-digit figures. The most representative cases were state-run oil company Petrobras, which saw a decline of 15%, banks Itaú and Bradesco, experiencing decreases of 22% and 30% respectively, along with NU Holding, which dropped by 21%. The decline was significant enough for the São Paulo Stock Exchange to implement a 30-minute trading suspension after the Bovespa experienced a drop exceeding 10%, reflecting the performance of the 100 most crucial companies listed on the Brazilian exchange.
The current president’s reelection has elicited adverse responses within the Argentine financial market. Among them was the decline in bond trading on Wall Street, which led to a significant increase in country risk. For financial markets, economist Gustavo Ber posits that Lula’s victory would also yield “positive effects for Argentina.” Among the most notable facts, Ber mentioned that Milei “would retain regional leadership” vis-à-vis US President Donald Trump, a “relevant” fact due to the financial backing received and the influence that this bond grants him in Latin America and on the international stage. Ber noted the “adverse impact” that the electoral results had on the valuation of Argentine assets. Local bonds trading on Wall Street are experiencing a significant decline. As a result, the country risk escalated to 745 points, marking its peak since the midterm elections of the previous year.
American Depositary Receipts are experiencing a decline of nearly 10% on Wall Street. The primary entities are Banco Supervielle at 9%, followed by BBVA at 8%, and lastly, Telecom also at 8%. Meanwhile, the Merval, the leading index of the Argentine stock exchange, is experiencing a decline of 4.8% in its dollar-denominated measurement and 3.2% in Argentine pesos. For Ber, another negative factor is the “deterioration of the Argentine peso’s competitiveness” against the Brazilian real, which depreciated rapidly after strengthening following the first round of voting in early October. “This not only makes Argentine exports to Brazil, its main trading partner, more expensive, but it could also trigger the exit of international investors,” Ber explained. He noted that this capital flight would be “fueled” by the closing of “carry trade” bets in Brazil.
There may be a heightened outflow of foreign currency from Argentina, “as a result of increased tourism to Brazil.” Analysts from broking Portfolio Personal Inversores indicated that the response from President Javier Milei’s economic staff “will be decisive” in tackling that loss of competitiveness. “The depreciation of the real introduces a headwind for the peso, so it will be important to observe whether the government allows any eventual selling pressure to translate into a rise in the dollar or if it intervenes again to contain it,” they said.
