Sixteen years ago, former union leader Luiz Inácio Lula da Silva led all opinion polls – and financial markets went bananas. A Goldman Sachs analyst created the Lulameter, “a model to quantify the probability of a Lula victory that was being priced by currency markets.” Mega-investor George Soros said that Brazil faced a choice between Social Democracy Party candidate José Serra and chaos.
Well, the groundhog hasn’t come out of his den, and it’s 2002 all over again.
Since last week, Brazilian markets have become extremely volatile, as multiple presidential polls showed Lula is still ahead. While the former president will likely be out of the picture by next month, his kingmaking ability has been attested by the rise of understudy Fernando Haddad in scenarios without Lula.
The stock market crashed and the value of the Brazilian Real against the U.S. Dollar went down, with the American currency breaking the BRL 4 barrier. It was the first time this has happened since 2016, when Brazil was impeaching its president.
Since Monday, when Ibope published its poll, the Brazilian currency has devalued 4.4 percent. Only six other currencies have lost more value this year. Plus, a study by investment bank XP predicts that if the Workers’ Party wins again, São Paulo’s most important stock exchange will drop from the current 76,000 points to below 55,000 points.
And things can even get worse.