Quick overview

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In addition to a challenging global backdrop, a series of recent political developments has prompted foreign investors to reassess their expectations ahead of Brazil’s presidential election.

Brazil has experienced a significant wave of foreign capital outflows in recent weeks. The trend reflects not only deteriorating global market conditions but also the recent decline of right-wing candidate Flavio Bolsonaro in opinion polls. Analysts broadly agree that the phenomenon is unlikely to have an immediate impact on Argentina, although they caution that pressures on the Brazilian real could eventually spill over into regional currency markets.

According to data compiled by Delphos Investment, foreign investors withdrew 2.47 billion reais (approximately $492 million) from Brazilian markets on Friday alone.

“This was not an isolated event but rather the culmination of a sequence of 19 outflow sessions in the last 21 trading days, totaling more than 22 billion reais ($4.38 billion) over the past month and reversing more than 25% of the foreign inflows recorded earlier this year,” the firm noted.

As a result, Delphos estimates that May is on track to become the worst month of the year for offshore capital flows, following first-quarter inflows of nearly 54 billion reais ($10.76 billion), which had marked the strongest start to a year since 2022.

Global Factors Drive Risk Aversion

The selloff has a clear external component driven by rising risk aversion and higher long-term global interest rates.

U.S. Treasury yields — widely regarded as the benchmark for risk-free assets — have risen sharply amid expectations that global inflation could remain higher than previously anticipated due to the conflict in the Middle East. That leads investors to reduce exposure to emerging markets, resulting in capital outflows.

Polls Turn Against Bolsonaro

At the same time, domestic political developments have added to investor concerns.

According to Zabaleta, recent polling suggests that Flavio Bolsonaro has lost ground against incumbent President Luiz Inácio Lula da Silva following allegations linking Bolsonaro to former banker Daniel Vorcaro, who is currently imprisoned on fraud-related charges.

Reports indicated that the senator allegedly held discussions with former Master Bank CEO Daniel Vorcaro regarding potential financing for a film about his father, former President Jair Bolsonaro.

The controversy has affected the electoral landscape. Between late 2025 and April of this year, Flavio Bolsonaro had narrowed the gap with Lula in hypothetical runoff scenarios, and Brazilian assets had increasingly reflected expectations of a more competitive race.

However, the latest AtlasIntel poll released this week — the first to fully incorporate the impact of the Master Bank controversy — showed Lula leading Bolsonaro by more than seven percentage points.

As a result, investors are now assigning a lower probability to a political shift in Brazil following the October election.

Even so, analysts emphasize that the electoral race remains in its early stages. Presidential candidates have yet to be formally confirmed, with final nominations expected in August ahead of the general election scheduled for October 4.