Brazilian markets recovered some ground on Tuesday after a sharp selloff that followed President Luiz Inacio Lula da Silva's reelection. The government called the turmoil a temporary repositioning by investors and pledged to maintain fiscal responsibility.
Brazil's real strengthened nearly 2% against the US dollar to around 5.31 per greenback on Tuesday, after tumbling more than 11% in the previous session. The Bovespa benchmark stock index rose 1% after ending Monday down 13.9%, while interest rate futures retreated.
Finance minister blames positioning, not fundamentals
Finance Minister Dario Durigan said the rout reflected positioning rather than a deterioration in Brazil's economic fundamentals. He noted that investors had built up bets on a victory by right-wing challenger Flavio Bolsonaro before Sunday's runoff.
According to Durigan, speaking to reporters in Brasilia: "It was not a reaction to fundamentals." He said calmer trading on Tuesday suggested markets were becoming more rational, and that the government remained committed to fiscal responsibility.
Lula's win unwinds Bolsonaro rally
Markets plunged on Monday after Lula secured a fourth non-consecutive term, wiping out gains from a rally fueled by expectations of a Bolsonaro victory. Bolsonaro had been ahead of the incumbent after the first round of voting on October 4.
Investors have since focused on whether the incoming administration can deliver credible fiscal adjustment while preserving social spending and investment. They are also watching Lula's selection of key economic officials.
Analysts see room for a new market narrative
JPMorgan analysts said markets had yet to develop a clear narrative for Lula's fourth administration beyond the sharp correction in asset prices. They argued investors would likely reassess the outlook in coming weeks as the economic team and policy plans take shape.
Alfredo Menezes, a partner at Armor Capital, said the selloff had created attractive entry points. He wrote on X that when stop-loss moves happen, opportunities emerge, adding that shares of some companies he considers high-quality assets had fallen as much as 36%.
Source: Reuters via Investing.com
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