U.S. investors woke up Monday to one of the steepest emerging-market shocks of the year: the iShares MSCI Brazil ETF (EWZ) traded down about 25% before the opening bell after President Luiz Inácio Lula da Silva won Sunday’s presidential runoff. The result reversed wagers that Senator Flávio Bolsonaro would take the presidency and pursue tighter fiscal policy, and it hit American depositary receipts from Petrobras to Itaú Unibanco in the same wave.
What the ballot showed
Brazil’s Superior Electoral Court reported Lula with 51.8% of valid votes to Bolsonaro’s 48.2% once nearly all ballots were counted. Lula had trailed in the Oct. 4 first round, making him the first candidate since Brazil’s 1989 return to direct elections to win the runoff after losing round one.
Markets had bid up Brazilian assets after the first round on expectations of a business-friendly administration. Sunday’s outcome forced a repricing of debt, currency, and equity risk in Latin America’s largest economy.
Who felt it in U.S. portfolios
EWZ is the liquid way many retirement accounts touch Brazil without opening a local brokerage account. Franklin’s FLBR and the iShares small-cap EWZS fell sharply as well, though not always by the same magnitude because index weights differ.
Individual ADRs sold off in tandem. Petrobras ADRs were down roughly a quarter in early trading, according to CNBC. Itaú Unibanco ADRs fell about 26%. MercadoLibre, which earns much of its revenue in Brazil, slid more than 10% and weighed on Nasdaq-100 futures because of its index weight.
Why holders care beyond Brazil
Even investors with no direct EWZ position can see spillovers. Spanish bank Santander, which counts Brazil as a major market, traded lower in Europe. Commodity names tied to Brazilian iron ore and oil faced questions about state intervention under another Lula term.
The Brazilian real and local bond yields were expected to come under pressure as traders reassess spending plans and the 2027 budget process. A weaker real amplifies losses for U.S.-dollar investors when profits are translated home.
Trading mechanics Monday
Premarket ETF prints are thin; spreads widen and prices can gap at the 9:30 a.m. ET open. Benzinga and other market desks warned that the first 15 minutes might not hold the premarket low if short covering or sovereign-buying emerges.
For long-term holders, the shock is governance and fiscal path, not a single day’s chart. For traders, volatility in EWZ options exploded overnight as implied moves repriced to include another four years of Lula economic policy.
What to watch next
Lula’s transition team statements on Petrobras dividends, mining royalties, and central bank independence will set the tone for whether Monday’s slide deepens or stabilizes. Congressional coalition math matters for any reform that investors priced in under a Bolsonaro win.
U.S. holders should check whether emerging-market funds they own use cap-weighted Brazil exposure or benchmark-aware underweights. A 25% move in one country sleeve can nudge broader EM ETFs even for investors who never bought EWZ directly.
Tax and ADR considerations
U.S. holders of Brazilian ADRs may owe withholding on dividends that does not always appear on a standard 1099 from a domestic broker. After a political shock, dividend policy at Petrobras and other state-linked firms becomes a separate question from the one-day equity move.
Tax-loss harvesting rules still apply: selling EWZ at a loss and rebuying within 30 days can disallow the deduction if you buy a substantially identical security, including another Brazil ETF tracking a similar index.