Brazil Stocks Are Suddenly an Election Bet. Here’s What Investors Should Watch
Brazil’s election just became a much bigger deal for US investors. Flávio Bolsonaro did far better than polls expected in Sunday’s first round, and Brazilian stocks listed in New York took off Monday. The question heading into the Oct. 25 runoff is how much of a Bolsonaro win the market has already priced in.
What the vote changed
Bolsonaro took 47.3% of the vote, ahead of incumbent Luiz Inácio Lula da Silva at 44.8%. Neither reached 50%, sending the election to a runoff.
Polls had Lula leading the first round by about three percentage points. Bolsonaro finishing ahead instead forced investors to quickly rethink the odds for the final vote.
His Liberal Party also increased its Senate seats from 15 to 28, the strongest showing by any party since Brazil returned to democracy in 1985. That matters because whoever wins the presidency will still need Congress to get major economic changes through.
Brazilian stocks took off
The Bovespa gained more than 8%, while the real strengthened more than 4% against the dollar. US-listed Brazilian stocks moved even more.
Itaú Unibanco gained 15%, while Banco Bradesco surged 19%. XP Inc. jumped 32% for its biggest one-day gain on record, and Nu Holdings, parent of Nubank, climbed 14%.
Petrobras and Vale also rallied, giving US investors several ways to trade the change in election expectations without buying shares directly in São Paulo.
J.P. Morgan upgraded Brazilian equities to overweight following the result, citing the more favorable political backdrop and room for further outperformance.
Why investors liked the result
Much of the enthusiasm comes back to Brazil’s finances. Bolsonaro has campaigned on spending cuts and a ceiling on public debt, while Brazil’s deficit-to-GDP ratio was nearly 10% in June.
Getting the deficit under control could eventually give Brazil more room to lower interest rates. That would be particularly important for banks and other companies whose businesses are sensitive to borrowing costs.
Mizuho analyst Dan Dolev expects little near-term impact but sees a possible inflection point beginning in 2028.
“Markets are likely to give him the benefit of the doubt.”
Thierry Larose, Vontobel
There is still a gap between campaigning on fiscal restraint and delivering it. Terra Investimentos analyst Pedro Paulo Silveira pointed out that reforms under the previous Bolsonaro government often stalled or required expensive political bargaining.
How US investors can play it
The simplest broad bet is the iShares MSCI Brazil ETF. It jumped 13.32% Monday to $43.28 and is up 37.53% this year, putting it near levels last seen in early 2020.
Stanley Druckenmiller was already betting on Brazil before the election surprise. His Duquesne Family Office reported $118M in EWZ shares and $146M in call options as of June 30. Any changes made since then won’t show up until its next filing.
Investors looking beyond the broad-market fund can get more targeted exposure through US-listed names. Itaú and Bradesco offer a bet on banks and rates, while XP and Nu give investors exposure to financial services and fintech. Petrobras brings government policy directly into the equation, while Vale offers more exposure to commodities and global growth.
The catch is how far expectations have already moved. Kalshi puts Bolsonaro’s odds of winning above 80%, up from about 60% before the first round. Polymarket has him at 85%, up from 63%.
That leaves three weeks for those expectations to change again. A Lula victory could give back a chunk of Monday’s gains, while a Bolsonaro win would still have to deliver enough on spending and debt to justify the rally.
