Markets
Brazil stock fund tumbles after Lula wins presidential run-off
The main U.S.-listed Brazil stock fund had one of its sharpest one-day falls on Monday, after Lula's run-off win led investors to drop bets on tighter government spending.
Quick Read
- The iShares MSCI Brazil ETF tumbled 19.8% on Monday after Lula won Sunday's run-off.
- Investors dropped bets that Brazil's next government would tighten spending.
- Nu Holdings tumbled 17.0%, while the S&P 500 rose 0.7%.
- Analyst Andrés Abadía said restoring trust in Brazil's public finances would be the harder task.
What happened to Brazilian stocks on Monday?
The iShares MSCI Brazil ETF (NYSE Arca: EWZ), a fund that trades like a single stock, tumbled 19.8% on Monday. It closed at $34.15, against a previous close of $42.59.
Why it matters: The fund lost $2.7 billion in market value. Shares worth $10 billion changed hands. Reports said the fund was heading for its worst session since it began trading.
By the numbers: Brazilian financial technology company Nu Holdings tumbled 17.0% and closed at $12.59. The company lost $12 billion in market value. Other Brazilian stocks also fell sharply, according to reports.
Why did the election result move markets?
President Luiz Inácio Lula da Silva won Sunday's run-off vote. Many investors had positioned for a government that would rein in spending.
Fiscal policy is how a government taxes and spends. Investors had bet on a tighter approach, and the result led them to drop those bets quickly.
Analyst Andrés Abadía said the tougher job for the government would be winning back trust in Brazil's public finances. How the new government plans to spend may be the main open question for Brazilian assets.
How did the wider market compare, and what comes next?
What’s next: The selling was centered on Brazil. In the U.S., the S&P 500 rose 0.7% and the Nasdaq-100 gained 1.1% on the same day.
Nu Holdings rose 2.2% in after-hours trading to $12.87, recovering a small part of the day's loss. The Brazil fund ended 21.6% below its 52-week high of $43.54.
For global markets, the next scheduled event is the Federal Reserve's interest-rate decision on Oct. 28 at 2 p.m. ET. U.S. third-quarter GDP, a measure of the whole economy's output, follows on Oct. 29 at 8:30 a.m. ET.
For readers
What it could mean for you: People with an international or emerging-markets stock fund may own Brazilian companies inside it, usually as a modest slice next to many other countries. A single-country fund such as the iShares MSCI Brazil ETF carries Brazil's swings in full, with nothing to offset them. Those holdings could stay volatile while investors weigh how much the new government plans to spend and how it might pay for it. Any spending announcement may move Brazilian shares sharply in either direction.
Questions and answers
Why did the Brazil ETF fall after the election?
Lula won Sunday's run-off, and investors abandoned bets on tighter government spending in Brazil. The iShares MSCI Brazil ETF tumbled 19.8% on Monday.
What is the iShares MSCI Brazil ETF?
It is an exchange-traded fund, a basket of Brazilian stocks that trades on a U.S. exchange like a single stock. It is the main U.S.-listed fund for Brazilian shares.
How did Nu Holdings stock do after Lula's win?
Nu Holdings tumbled 17.0% on Monday and closed at $12.59. It rose 2.2% in after-hours trading.
Did the Brazil sell-off hit the U.S. stock market?
The broad U.S. market rose on the same day. The S&P 500 rose 0.7% and the Nasdaq-100 gained 1.1%.
The numbers
| iShares MSCI Brazil ETF (EWZ) price | $34.15 |
|---|---|
| iShares MSCI Brazil ETF (EWZ) change | −19.82% |
| iShares MSCI Brazil ETF (EWZ) market value | $11 billion |
| iShares MSCI Brazil ETF (EWZ) 52-week high | $43.54 |
| Nu Holdings (NU) price | $12.59 |
| Nu Holdings (NU) change | −16.95% |
| Nu Holdings (NU) market value | $61 billion |
| Nu Holdings (NU) 52-week high | $18.76 |
| S&P 500 change | +0.70% |
| 10-year Treasury yield | 5.00% |
Monday’s close
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Not investment advice.
