Brazilian Real: Lula reelection risks and carry support – BBH

Brown Brothers Harriman’s (BBH) Elias Haddad assesses Brazilian assets following President Lula’s surprise reelection. Haddad expects short-term downside for the Brazilian Real (BRL) as markets unwind the prior Bolsonaro-driven rally and react to rising public debt. However, Haddad highlights legislative constraints and Brazil’s attractive carry and commodity exposure as factors that could limit BRL weakness and later create a buying opportunity.

Short-term pain, structural tailwinds

"Lula’s surprise reelection puts Brazilian assets at risk in the short-term but could set up a buying opportunity."

"Luiz Inácio Lula da Silva secured a fourth presidential term when prediction markets assigned an 80% probability to a Flávio Bolsonaro victory."

"As such, BRL is poised to unwind its rally following Bolsonaro’s strong first round showing earlier this month."

"Lula’s greater tolerance for rising debt adds to BRL headwinds. Brazil’s gross public debt has risen from 71.7% of GDP when Lula took office in January 2023 to 83.0% of GDP in August 2026, the highest since 2021."

"However, legislative constraints should keep BRL weakness in check. Lula faces a conservative Congress and needs centrist support to pass legislation, limiting the scope for runaway fiscal expansion."

"Importantly, Brazil’s attractive carry and strategic exposure to commodities linked to energy, AI, and defense remain key structural tailwinds for BRL."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)