Two years of Lula da Silva's rule in Brazil turned out to be a real test for investors. The currency weakened, bond yields rose, and the stock market showed only half the growth seen in other emerging markets. This is in stark contrast to his first term as president 20 years ago, when he became an unexpected favorite of Wall Street by adopting tough economic policies and overseeing the booming Brazilian markets. However, according to observers, Lula 2024 bears little resemblance to Lula 2003. He is ignoring calls to cut spending to contain the budget deficit, which has reached about 10% of Brazil's GDP — one of the highest in the world. This scares off investors who are already reluctant to invest in emerging markets when they can get higher returns on U.S. government bonds or AI-related stocks. The Ibovespa share index fell by 11%, the real weakened by 11% against the dollar, and the yield on the underlying fixed-rating bonds rose by more than 1.9%. Ignoring investors' concerns, Lula risks further reducing the flow of capital, exacerbating the fall in the currency and provoking a new surge in inflation that will hit all Brazilians.
