Business · Markets · 15 hrs ago
Lula's re-election weighs on Brazil's small-cap stocks
Lula’s re-election changed investor expectations for smaller Brazilian companies after Flávio Bolsonaro lost the presidential race.
The Small Caps index, which tracks shares of companies with lower market values, fell 6.85% between the runoff and Thursday, November 5.
On the first trading day after the result, the index dropped 26.92%, compared with a 13.88% fall in the Ibovespa.
Investors had expected small-cap shares to benefit if interest rates fell, but higher future rates and fiscal concerns weakened that outlook.
Smaller companies are often more exposed to Brazil’s economy and rely more on borrowing, so costly credit can raise their expenses and reduce demand.
The Central Bank held the Selic rate at 13.75% at its first meeting after the runoff, and forecasts for inflation and the rate were raised.
Larger, more liquid companies often attract more foreign investment, while small caps may continue to lag if uncertainty persists.
Lula’s re-election changed the outlook for Brazil’s small-cap stocks, which came under pressure from higher future interest rates and investor concerns about public finances.
The Small Caps Index (SMLL) fell 6.85% between the second round and Thursday, November 5.
On the first trading day after the election result, the SMLL fell 26.92%, compared with a 13.88% decline in the Ibovespa.
Before the second round, the SMLL had risen as much as 9.17% in one day amid expectations that a win by Flávio Bolsonaro would bring more market-friendly economic policy.
Brazil’s central bank later halted its cycle of Selic rate cuts, holding the rate at 13.75% a year.
- Who
- Lula was re-elected, while Flávio Bolsonaro lost the presidential contest. Small-cap investors were affected by the change in market expectations.
- What
- Brazil’s small-cap stocks fell after Lula’s re-election, amid higher interest-rate expectations and concern about public finances.
- When
- After the second round of the 2026 presidential election; the article reports losses through Thursday, November 5.
- Where
- Brazil’s stock market.
- Why
- Investors had expected small caps to benefit from lower interest rates after a Flávio Bolsonaro victory. Lula’s re-election changed those expectations and increased concern about fiscal risk.
This story does not have two clearly opposing sides.
The SMLL rose as much as 9.17% in one day as investors anticipated a possible Flávio Bolsonaro victory.
Lula’s re-election changed market expectations for small-cap stocks.
The SMLL fell 26.92%, while the Ibovespa declined 13.88%.
Brazil’s central bank halted its cycle of Selic cuts and held the rate at 13.75% a year.
The SMLL had fallen 6.85% since the second round.
- SMLL decline after election
- 26.92% on the first trading day after the result
- SMLL decline through November 5
- 6.85% since the second round
- Ibovespa decline
- 13.88% on the first trading day after the result
- Selic rate
- 13.75% a year after the first post-runoff Copom meeting
- Pre-runoff SMLL rise
- As much as 9.17% in one day
What people are saying
Smaller companies also tend to have higher leverage, meaning lower interest rates would reduce financial expenses and increase profits
When uncertainty rises, investors tend to seek larger, more liquid, less indebted companies, often with dollar-denominated revenues or less dependence on the domestic economy