Lula Staged an Unexpected Comeback in Brazil’s Presidential Elections. Its Markets Are Plunging.

Brazilian markets are plummeting on Monday after Brazilian President Luiz Inacio Lula da Silva staged an unexpected comeback and won the country's elections.

The iShares MSCI Brazil ETF fell over 25% before markets opened in the country, while the country's currency, the real, weakened more than 10%. Stocks of top companies like Nubank also plunged.

Assets had rallied over the month after Lula's contender, Flavio Bolsonaro, won in the first round and cemented expectations that he would become the country's next president. The stock index, Ibovespa, had climbed about 7% by Friday since the first round.

Investors are also concerned at the fact that Bolsonaro is refusing to concede defeat and could mount a legal challenge of the results. Bolsonaro is seeking the annulment of the results, claiming that a ruling by Supreme Court Justice Cristiano Zanin to extend voting for two hours was "unacceptable."

"It is impossible to recognize the election results, given the circumstances under which things unfolded," Bolsonaro told press.

Whether the scenario drags on and Lula's choice of finance minister and fiscal policy will be the next catalysts for Brazilian assets.

"I won't speak of national unity, because that doesn't always fit the reality of this country. No one is obliged to like the elected president, but he was put in place to govern for everyone," Lula said after his victory.

Despite Bolsonaro's challenge, different global leaders were quickly to congratulate Lula, with messages coming from the EU, Mexico, France, Peru, Uruguay, India and Russia. The Trump administration has so far not commented on the results.

Lula has been a vocal critic of Trump's on various issues, warning the president not to interfere in Latin American elections, decrying Trump's proposal to charge commercial vessels a fee to cross the Strait of Hormuz as "piracy," and attacking the Trump administration's imposition of tariffs on Brazilian goods (the U.S. currently maintains a tariff of 25 percent on most Brazilian imports).