What Brazil’s Election Means for US Investors

Markets: Brazil Election

Brazil’s election lands on a market that has already moved. The Ibovespa gained 2.6% on Friday and about 4.7% on the week, and US-listed Brazilian shares followed. Here is what US investors should know before Monday’s open.

Where Brazilian Assets Stood on Friday

All prices below are Friday, October 2 closes from RT. The Ibovespa, Brazil’s main stock index, closed at 192,114.55 points, up 2.6% on the day. It was up 4.7% from the September 25 close of 183,476.86.

The real closed at R$5.2223 per US$ on RT’s rate, almost unchanged from R$5.2176 on Thursday. Brazilian press reports quote about R$5.216 for the commercial dollar close, a small difference of source. In New York, the EWZ fund, which tracks Brazilian equities, closed at US$38.19, up 2.8% on the day. Petrobras’s preferred-share ADR (PBR-A) closed at US$19.60 and its common-share ADR (PBR) at US$21.65. Vale (VALE) closed at US$13.76.

Exame, citing market reports, said the Friday rally came from investors building long positions on a better first-round showing by Flávio Bolsonaro than the polls suggest. That reading is the outlet’s, not ours. Nobody knows how many of Friday’s buyers are betting on a particular result.

The Two Scenarios

The final polls do not separate the candidates. Datafolha has President Lula on 45% of valid votes and Senator Flávio Bolsonaro on 42%. Quaest has 46% to 45%. In the runoff, Datafolha has Lula 47% to 46%, while Quaest has Flávio 44% to 42%.

If Flávio Bolsonaro finishes first or close behind. Friday’s positioning suggests parts of the market would read that as a step toward a change of power. A first-round result better than the polls would test that bet. The risk is that a rally built on expectations fades if the count disappoints.

If Lula finishes comfortably ahead. The gains made on Friday could be partly reversed on Monday, because they were priced for a tighter race. Lula would still need more than 50% of valid votes to win outright, and no poll puts him there.

If nobody clears 50%. This is the base case in every survey. Brazil then holds a runoff on Sunday, October 25, and markets would trade three more weeks of campaign news, with the first-round order and the endorsements of the eliminated candidates as the main signals.

How the Main Names Fit In

Petrobras is the oil company controlled by the federal government, so its policy on fuel prices, dividends and investment depends on who sits in the presidential palace. Vale, the mining giant, has no controlling shareholder, which makes it less exposed to government decisions but not to the real or to Chinese demand. EWZ holds both, plus banks, utilities and retailers, so it carries the broadest Brazil risk, including the currency.

For US dollar holders, the real matters twice. It sets the dollar value of Brazilian earnings, and it moves with election news. A weaker real cuts the dollar return of EWZ even if Brazilian stocks rise in local terms.

Washington is also part of the picture. A 25% Section 301 tariff on many Brazilian goods has applied since July 22, with exclusions for items such as civil aircraft and energy products. A separate 12.5% tariff hits some goods, so combined duties can reach 37.5%. The two governments set up a working group on September 30, but no tariff has been lifted. The winner will shape how Brazil negotiates with Washington, a theme we cover in our election guide.

What to Watch on Monday

Brazilian markets reopen on Monday, October 5. Three things will set the tone. First, the first-round order and the gap between the two leaders, which the electoral court (TSE) will publish from 4 p.m. Eastern on Sunday. Second, the real against the dollar in early trading. Third, the central bank’s Focus survey at 7:30 a.m. Eastern, which shows what economists expect for inflation and interest rates.

The central bank cut its Selic benchmark rate to 13.75% on September 16, and its next meeting is on November 3 and 4. September inflation (IPCA) is due on Friday, October 9 at 8:00 a.m. Eastern. Follow the count on our live results page.

What It Means for You

If you own Brazilian ADRs or EWZ, expect larger-than-usual price swings on Monday and again after October 25, whichever way the vote goes. Check how much of your exposure is in the real, in oil prices and in iron ore, because the election touches all three. This is information, not investment advice.

What Is Not Known

Nobody knows the first-round result, the turnout, or how many undecided voters will switch. The size of Monday’s move depends on the gap between what the polls say and what the count shows, and polls have missed in Brazil before.

How will Brazil’s election affect US investors?

Through the real, Brazilian stocks and US-listed Brazilian shares. The final polls show a statistical tie, so Monday’s open could move prices sharply. A runoff, if needed, is on October 25.

How did Brazilian markets close before the election?

On Friday, October 2, the Ibovespa closed at 192,114.55 points, up 2.6% on the day, and the real at R$5.2223 per US$ (RT). The EWZ fund closed at US$38.19, Petrobras’s PBR-A ADR at US$19.60 and Vale at US$13.76.

Which Brazilian stocks can US investors buy?

Petrobras and Vale trade in New York as ADRs, which are certificates representing shares of a foreign company. The EWZ exchange-traded fund holds a basket of Brazilian stocks. All three trade in US dollars.

When will the election result be known?

The electoral court starts publishing the count when polls close at 5 p.m. Brasília time, which is 4 p.m. Eastern on Sunday, October 4. Brazil counts electronically, so a national picture usually emerges within hours.

Is a runoff likely?

Very likely. A candidate needs more than 50% of valid votes to win outright, and no final poll puts Lula or Flávio Bolsonaro there. Every Brazilian presidential election since 2002 has gone to a runoff.

Frequently Asked Questions