Ibovespa Slides for a 9th Straight Session as Citi Drops Brazil’s Real on a Likely Lula Win

Brazil · Markets

Foreign money is edging away from Brazil as the October election nears. With Citi and a big global fund cutting their bets on the real and local shares.

Illustrative photo of the Sao Paulo skyline, home to Brazil’s B3 exchange. The Ibovespa closed at 166,934 points after a 9th straight losing session. (Photo: Wilfredor, CC BY-SA 4.0, Wikimedia Commons.)

The Ibovespa, Brazil’s main stock index, fell for a 9th straight session on Friday, its worst losing streak since 2023. The slide came as one of the world’s biggest banks, Citi.

Dropped the Brazilian real from its favored bets, warning that a likely Lula election win is unsettling markets.

What happened to the Ibovespa this week

The Ibovespa closed at 166,934 points on Friday, a seven-month low. In fact, it was the ninth day in a row that the index finished in the red.

Overall, the market gave back about 6.2% across those nine sessions. For the week alone, it dropped roughly 3.2%, a rough stretch by any measure.

The banks took the heaviest hit

Brazil’s big lenders led the fall. In short, four of them together shed about R$96.7 billion (around US$18.6 billion) in market value over the nine sessions.

For example, Itau Unibanco alone lost about R$43.5 billion (US$8.4 billion). Meanwhile, Bradesco, BTG Pactual and Banco do Brasil made up most of the rest.

Oil giant Petrobras also felt the pain. In fact, its market value fell by roughly R$18.55 billion (about US$3.6 billion) during the same run.

Citi drops Brazil’s real from its bets

On Thursday, Citi made a telling change. As a result, the bank removed the Brazilian real from its carry-trade basket and put the South African rand in its place.

Still, that is a clear signal to the wider market. Because when a major bank stops recommending a currency, other big investors often follow, adding to the pressure.

What a carry trade actually is

A carry trade is simpler than it sounds. Basically, investors borrow money where interest rates are low and park it where rates are high.

For instance, Brazil has long been a favorite for this trade. Its interest rates are among the world’s steepest, so the real paid investors well to hold it.

Still, the trade only works while the currency stays steady. As a result, if the real weakens, those gains can vanish overnight, which is exactly the fear now.

Why a likely Lula win worries markets

Brazil votes in October, and Citi flagged a probable win for President Lula as a key reason for its caution. In short, investors worry that another Lula term could mean more public spending and looser budgets.

As a result, that combination tends to weaken a currency over time. Still, none of this is a verdict on his politics.

Instead, markets simply price in the risks they see, and right now they see a bigger deficit ahead.

A big global fund heads for the door

Citi is not alone in stepping back. Meanwhile, GQG Partners, a large international investment firm, sharply cut its exposure to Brazilian stocks this week.

In addition, GQG trimmed its stake in Petrobras to about 4.99% of the company’s ordinary shares. As a result, that selling added to the downward push on the market.

In fact, on one day alone foreign investors pulled roughly R$1.6 billion (about US$308 million) out of Brazil’s stock exchange.

The real under pressure

Meanwhile, the currency itself has been sliding too. The real closed near R$5.19 to the US dollar on Friday, softer than earlier in the summer.

For example, a weaker real makes imports pricier and can stoke inflation. As a result, that limits how far the central bank can cut interest rates later.

How bad is this slump, really

Since August 2023, the Ibovespa had not fallen this many days in a row. Back then, it slid for 13 straight sessions.

So this is a serious wobble, but not uncharted territory. Even so, the mix of politics and foreign selling makes the mood especially nervous.

What to watch next

The election calendar now sets the tone. Once October nears, every poll and policy hint is likely to move the market sharply.

Meanwhile, for everyday Brazilians the signals to watch are simple. Overall, a steadier real and a calmer Ibovespa would suggest the panic is easing.

Frequently Asked Questions

How far has the Ibovespa fallen?

The Ibovespa closed at 166,934 points on Friday after nine straight losing sessions. Down about 6.2% over that run and roughly 3.2% for the week.

Why did Citi drop the Brazilian real?

Citi removed the real from its carry-trade basket, replacing it with the South African rand. And pointed to October’s election and a probable Lula win as reasons for caution.

What is a carry trade in plain terms?

It is borrowing cash where interest rates are low and investing it where they are high. Brazil’s high rates made the real popular, but a falling currency can wipe out the gains.

Is this the worst losing streak ever?

No. It is the longest since August 2023, when the Ibovespa fell for 13 sessions in a row. This run reached nine sessions.

Sources: Valor Economico; SpaceMoney; CNN Brasil; Infomoney; Reuters.