The iShares MSCI Brazil ETF (EWZ) fell 19.82 percent on Monday, 26 October, a single-day drop that The Kobeissi Letter said represented an 8.43 standard deviation move. The newsletter called the session a black swan event.
The Brazilian stock market fell more than 30 percent in dollar terms during the same session. It triggered its first circuit breaker since 2020. The real fell about 10 percent against the US dollar intraday.
Election result drove the sell-off
The move followed the runoff on 25 October, in which Luiz Inácio Lula da Silva was re-elected. The Tribunal Superior Eleitoral confirmed the final count, reversing an earlier lead for Flávio Bolsonaro of the Partido Liberal.
In the first round on 4 October, Flávio Bolsonaro took 47.03 percent of valid votes and Lula took 45.16 percent. Brazilian stocks had risen 15 percent after that vote.
Statistical odds and volatility
The Kobeissi Letter said that under a normal distribution, a decline this extreme has a probability of about 1 in 58 quadrillion. EWZ’s average daily move over the last 20 years was a gain of 0.04 percent, with a standard deviation of 2.36 percent.
The newsletter also said volatility was lower than what had been priced in before the election result. It described this as one of the largest volatility crushes in history alongside a fall of more than 20 percent in the underlying market.
Brazilian stocks lost more than $200 billion in market value during the session. Dollar-denominated government bonds also saw heavy selling abroad.
