Ibovespa drops 13.88% after the second round, and manager uses rebalancing rule to buy shares

The Ibovespa closed Monday, October 26th, with a drop of 13.88%, at 176 thousand points, after triggering the circuit breaker right at the opening. On the same day, the manager of Clube do Valor executed five purchase orders totaling R$4.9 million in Brazilian shares, in a move that the founder, Ramiro Gomes Ferreira, attributes to a portfolio rebalancing rule, and not to a bet that the stock market would recover.

The previous Friday, the index had closed at 205 thousand points, close to the historic high. According to the presenter, the market expected Flávio Bolsonaro to win, a scenario that, according to an analysis house cited by him, appeared in 13 surveys. Lula was elected with 51.79% of valid votes, a change of more than 10 million votes compared to the first round. A foreign manager, also mentioned in the video, summarized that the risk of the PT's turnaround was not in the price.

The size of the fall

The numbers presented in the video give the dimension of the movement. EWZ, a fund that replicates Brazilian shares in New York, fell 27.46% in the pre-opening, and Ibovespa futures left the auction with a decline of 19.7%. The dollar reached R$5.60 and closed at R$5.40, the fifth biggest daily increase since the beginning of the Real Plan. The circuit breaker froze trading for 30 minutes, and at the day's low the index touched 169 thousand points, a drop of 17.3% compared to Friday.

According to the aforementioned survey, the worst previous closing since 1994 had been negative 15.83%, in September 1998, during the Asian crisis and the Russian moratorium. The listed companies lost R$734 billion in market value, equivalent to 98% of Petrobras' value. Of the 76 stocks in the index, 68 closed lower. A large bank fell close to 30%, B3 fell 36%, a retailer fell 58% and small caps lost 27%. At the same time, the exchange registered more than 8 million trades, a record.

The Treasury canceled bond auctions and repurchased around R$7 billion to contain interest rates, the presenter reported. Abroad, the S&P 500 rose 0.7%, which, according to the channel's reading, shows that the panic was restricted to Brazil. Foreign banks and houses mentioned project Ibovespa close to 170 thousand points or corrections of 20% to 30%.

The logic of purchasing

The orders were executed in two funds: R$3.547 million in the value fund, in three orders, and R$1.354 million in the momentum fund, in two. Ferreira emphasizes that the value refers to the equity funds under management, and not to the personal account, that the strategies are quantitative and that no manager has decided how much to buy. According to him, the amount arises from macro allocation: each investor defines a target percentage for shares before the crisis, according to their risk tolerance. With the fall, the share of shares in client portfolios was below the target, and the rule ordered purchases, with resources from sales of American shares or new contributions.

In a hypothetical example, a R$1 million portfolio with 30% in shares would fall to R$958 thousand, and the share of shares would reach 26.96%. To get back to the goal, it would be necessary to buy around R$29,000, selling fixed income. In the presenter's opinion, the method requires no electoral prediction and courage, as it forces you to buy what is cheap and sell what is expensive.

What history and risks say

Ferreira does not claim that the worst is over. In the six presidential elections since 2002, the stock market fell the day after the second round in four and closed the first week rising in all of them, but never with a drop of this size. In 2014, the weekly increase of 5.18% preceded a strong recession, rising unemployment and the impeachment of Dilma Rousseff. He also cites managers who warn of the risk of snowballing without clear signaling from the government.

The presenter resorted to the 2008 episode, when Warren Buffett announced purchases of American shares: the stock market fell another around 20% in a month, and the bottom only came in March 2009. According to him, those who waited for comfort would have around US$62 thousand for every US$10 thousand, compared to US$115 thousand for those who bought out of fear. The backtest of the channel's cheap shares strategy, from 2004 to 2025, shows 17.7% per year against 9.4% for the Ibovespa, with a maximum loss of 32%, compared to 29% for the index. The channel itself emphasizes that this is a simulation and that past profitability does not guarantee future results.

Automatically translated from Portuguese.