Petrobras Shares Plunge 22% Before Open After Lula’s Surprise Brazil Win
Key Facts
Petrobras shares fell about 22% in premarket trading on Monday, October 26, after Luiz Inácio Lula da Silva was declared the winner of Brazil’s presidential runoff. The electoral court said Lula won 51.8% of the vote, defeating Flávio Bolsonaro by about 4.4 million votes, according to final results published after all ballots were counted. Premarket trading showed broader pressure on Brazilian assets, with major bank shares and a fund tracking the country’s market also falling. The move came after investors and markets had been positioned largely for a Bolsonaro victory, making Lula’s win a surprise that overturned earlier bets. Brazilian stocks had closed Friday about 7% above their level before the first round.
Shares of Itaú Unibanco, Banco Bradesco and Nu fell between 23% and 29% in premarket trading on October 26, while the iShares MSCI Brazil ETF dropped more than 27%, according to Investing.com. The moves show the repricing extending from Petrobras to banks and the broader Brazilian market. The available figures are specific to premarket trading and do not represent official closing prices for the session. The rally in shares before the second round had been part of a broader rise in Brazilian assets, supported by expectations of a rightward political shift and tighter fiscal policy. In the period before the runoff, the real rose about 5% against the dollar, while interest-rate futures reflected expectations of lower borrowing costs.
William Jackson, chief emerging-markets economist at Capital Economics, said, "Lula’s surprise win will dash hopes for reforms that would improve public finances and boost growth prospects." Investors’ concerns are tied to the incoming government’s fiscal course, as Brazil’s public debt exceeds 82% of gross domestic product. Mandatory spending on pensions and other legally protected programs also limits the scope for spending cuts. Jackson said rate cuts at two meetings during the rest of the year were no longer as likely, adding that "higher fiscal risks and a weaker real could put pressure on markets." These concerns put the government’s ability to control spending and public finances at the center of investors’ focus after the election.
Lula lost the first round to Bolsonaro by more than 2.2 million votes before overtaking him in the runoff, in an electoral shift the Associated Press described as the first of its kind since military rule ended in 1985: the candidate who finished second in the first round won the presidency. The final-round result changed market expectations, which had leaned toward Bolsonaro remaining in power, according to the report, which said investors and analysts had been positioned heavily for that outcome. Before the election, optimism about tighter fiscal policy had supported Brazilian assets, including the currency and stocks. But Lula’s win raised questions about the prospects for reforms investors had hoped would improve public finances and growth prospects. This means the market’s assessment of future economic policy will depend on the government’s decisions and the details it announces.
Lula’s administration is targeting a primary budget surplus, before interest payments, of about 1.3% of gross domestic product by 2030, according to Investing.com. In the nearer term, investors are watching for the next finance minister and details of the 2027 budget and spending cap as early signals of the fiscal policy path. Jackson said markets want to see "what the 2027 budget and spending cap will look like." These details matter beyond the announcement of a long-term fiscal target, given the high public debt and constraints imposed by mandatory spending. The market is therefore focused on whether spending and budget measures align with the stated surplus target.
The market shock comes as Petrobras has approved a business plan for 2026–2030 that includes bringing 8 new production systems online by 2030, 7 of which are already under contract. The company aims to complete the deployment of 11 floating production platforms in the Búzios field by 2027, as the contracted platforms enter service. Petrobras said the plan strengthens financial sustainability through capital discipline, operating efficiency, improved operating expenses and limits on the investment budget. These operating targets provide a framework for the company’s activity in the coming years, while investors’ immediate response remains tied to their assessment of the election result and the government’s fiscal course. The economic team appointments, the 2027 budget and the spending cap are expected to be the next milestones the market watches.