Why Brazil’s Stocks and Funds Like the iShares MSCI Brazil ETF Are Crashing Today
Key Points
Most Brazilian stocks are deep in the red on Monday following Sunday's national elections.
The left-leaning Presidential incumbent successfully fended off the conservative pro-business challenger.
This rival candidate, however, is contesting the election’s results, worrying investors that the beleaguered nation’s economy could continue facing challenges stemming from sheer uncertainty.
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As is often the case anywhere else, political drama in Brazil is undermining the country's equity markets. Against projections that conservative rival candidate Flavio Bolsonaro would prevail, on Sunday, left-leaning Luiz Inacio Lula da Silva was reelected as the South American nation's President for a fourth (albeit non-consecutive) term, defying recent right-leaning election results in nearby nations like Colombia, Peru, Chile, and Bolivia.
It's not just pro-capitalism Bolsonaro's election loss that's behind the bulk of today's selling, however, that's dragged the broad-based iShares MSCI Brazil ETF (NYSEMKT:EWZ) down nearly 23% today. It's the uncertainty that's now potentially going to follow. Bolsonaro is seeking a legal annulment of the results due to the decision from Brazil's supreme court to extend voting by two hours in areas where heavy rainfall that may have delayed voters from being able to reach their designated voting stations during scheduled voting.
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Bolsonaro's legal argument isn't particularly strong, however. In fact, his own campaign even called for polls to remain open for longer than initially intended for the very same weather-related reasons.
It may not matter though. Although Flavio Bolsonaro has never been convicted of a crime, Bolsonaro’s father Jair Bolsonaro -- a former president of Brazil -- was convicted of several last year, including planning a political coup in 2023 against then-President da Silva. While there’s been no evidence that Flavio Bolsonaro is planning such a response to his election loss, given his refusal to accept Sunday’s results, Brazilians may be fearing the possibility as well as its economic fallout.
Image source: Getty Images.
That may be the right call for the time being too. Or, for those investors interested in stepping into some of this nation's more compelling stock prospects following today’s sizeable setback, it’s enough reason to steer clear for a while despite the deep discount. While Monday's plunge may well end up being a prime buying opportunity, uncertainty works against stocks' values. And there's apt to be plenty of uncertainty ahead for a while.
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James Brumley has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
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