Brazilian assets suffered their sharpest selloff in decades on Monday following President Luiz Inácio Lula da Silva’s reelection victory, preceded by a 27% plunge in a tokenized perpetual contract tracking the iShares MSCI Brazil ETF.
EWZ Perpetual Falls 27% as Lula Reelection Triggers Brazilian Selloff
Brazilian assets tumbled following President Lula’s election victory, with weekend tokenized perpetual contracts signaling the historic selloff ahead of traditional market opens.
The market decline reversed prior investor positioning favoring candidate Flávio Bolsonaro, which had driven gains earlier in October on hopes of fiscal restraint. As election results confirmed Lula's fourth presidential term, the rapid unwinding of bullish bets triggered circuit breakers on the B3 exchange and heavy losses across Brazilian equities, sovereign bonds, and the real.
Hyperliquid Perpetual Signals Premarket Crash
According to Crypto Briefing, a perpetual futures contract tracking the iShares MSCI Brazil ETF ($EWZ) on Hyperliquid dropped as much as 27% before traditional Brazilian and US equity markets reopened. The contract operates under Hyperliquid's HIP-3 framework and is deployed by trading platform trade.xyz, offering around-the-clock trading that allowed market participants to react to election developments over the weekend.
Ahead of Sunday’s presidential runoff, the perpetual contract had risen to approximately $45.16, trading around 6% above the underlying fund's Friday closing price of $42.59 as market participants positioned for a win by Senator Flávio Bolsonaro. However, market commentary shared on X showed that as Bolsonaro’s implied victory probability on prediction platform Kalshi fell from around 80% to 30%, the contract declined from approximately $46 to $42.58. Selling then accelerated once official election results confirmed Lula's victory, driving the 27% drop.
According to Brazil’s Superior Electoral Court, Lula secured 51.79% of valid votes compared to 48.21% for Bolsonaro to win a fourth term as president.
Brazilian Stocks and Currency Plunge
When traditional equity markets reopened on Monday, prices rapidly adjusted to match the early moves signaled by the tokenized contract, according to Crypto Briefing. The iShares MSCI Brazil ETF fell to approximately $31.83 in US premarket trading, marking a 25.3% decline from its Friday close. During regular trading hours, the ETF traded below $30 before recovering to around $33.60, remaining down approximately 21% on the day.
In São Paulo, the benchmark Ibovespa index suffered its steepest daily percentage loss since 1998, sliding as much as 17.34% to reach 169,516 points. Trading on the B3 exchange was suspended for 30 minutes after an initial 10% decline triggered a circuit breaker mechanism for the first time since March 2020. Around midday Brasília time, the Ibovespa was down approximately 15.61%.
Brazilian financial and corporate equities recorded severe losses during Monday's session. XP shares plunged more than 52%, while Bradesco fell nearly 28%, Nu Holdings dropped 21%, and Itaú Unibanco declined 20%. State-controlled oil company Petrobras dropped approximately 16%, recovering from an earlier premarket decline of more than 20%. In currency markets, the Brazilian real depreciated more than 11% against the US dollar in early trading before paring some of those losses.
Fiscal Anxiety Reverses Pre-Election Gains
The sudden downturn reversed gains accumulated earlier in October, when Bolsonaro’s stronger performance during the election's first round encouraged market expectations of tighter fiscal policy and an investor-friendly economic environment. Investor anxiety surrounding Lula’s victory centers on Brazil’s fiscal outlook, government spending policies, and public debt management, according to Crypto Briefing citing Reuters commentary.
The election outcome also put upward pressure on borrowing cost expectations, weighing on Brazilian government bonds as investors priced in prolonged elevated interest rates. The scope and speed of the market reaction mirrored past election volatility in Brazil, including the market downturn seen prior to Lula’s initial presidential victory in 2002.
What to Watch
Investors and market participants are closely tracking Lula's upcoming policy decisions, including his choice for finance minister, official announcements regarding government spending plans, and strategies for managing Brazil’s public debt burden.
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