iShares MSCI Brazil ETF

EWZ

Börsenwert 11,6 Mrd. $

Brazil's presidential election is powering optimism in the country's stock market — and capturing the attention of investors wary of having too much exposure to the U.S. stock market.

Budget deficits close to 10% of gross domestic product have pushed Brazil's central bank to maintain high interest rates.

Markets priced in a more disciplined fiscal path as Bolsonaro's lead came with strong conservative Senate and governor results. Rates should fall regardless of the winner, but how far depends on a credible fiscal plan.

Brazilian ETFs like EWZ and FLBR surged 12-13% after the pro-market election result, but I reiterate my hold rating. Short-term gains are driven by capital flows and euphoria, not structural improvements; Brazil's market remains fundamentally weak.

Flávio Bolsonaro's 47.0% 1st-round result caught the markets off guard. EWZ jumped into the low teens % premarket. To understand why, bear in mind that Brazil's gross public debt has climbed to around 83% of GDP from roughly 71% when Lula (the current president) took office. I think the 13.75% Selic rate keeps Brazil's equity risk premium tightly linked to confidence in fiscal policy.

iShares MSCI Brazil ETF surges 13% on pro-market election momentum, outperforming the S&P 500 over the past year. EWZ's valuation remains compelling at 8.7x P/E with a sub-1.0x PEG, supported by strong technicals and bullish election-driven sentiment. Financials and Energy dominate EWZ's portfolio, positioning it to benefit from sector-specific tailwinds and potential pro-shareholder reforms.

Markets are betting Flávio Bolsonaro can fix Brazil's balance sheet and rein in public spending. Translating political momentum into lasting economic reform will be a much harder task.

Flávio Bolsonaro took a surprise lead over Luiz Inácio Lula da Silva in the first round of Brazil's presidential election, making him the favorite to win the runoff which is to be held October 25. Brazil's real surged against the dollar in Sao Paulo Monday morning.

Flávio Bolsonaro and Luiz Inácio Lula da Silva will face off in a run-off on Oct. 25 for Brazil's presidency, after both received the most but neither a majority of the votes in a first round result on Sunday. Bolsonaro is now seen as the overwhelming favorite to win the presidency, following a better-than-expected performance for him in the first round compared to what polls expected before the result.

The iShares MSCI Brazil ETF (NYSEARCA:EWZ) rose 13.32% in Monday's regular session and traded at $43.28 as of 11:03 AM ET this morning. Through this morning, the fund is up 17.54% over the past week, 37.