Goldman Sees Surge in Brazil Trade Amid Bolsonaro's Lead

Brazil's general elections triggered a significant shift in political momentum, with right-wing Senator Flávio Bolsonaro narrowly edging out socialist President Luiz Inácio Lula da Silva in the first round. Polls now show Bolsonaro leading in the October 25 runoff, with international investors showing strong interest in Brazilian assets. Goldman Sachs analysts noted that the week following Bolsonaro's victory was the busiest in Brazil's market history, marked by record trading volumes and significant inflows. The trading desk observed a surge in foreign investment, with a record $2 billion inflow on the first trading day after the election. The market reaction was dramatic, with the EWZ ETF rising over 12.5% in a single day, a rare event in the asset's history. Goldman's analysts highlighted that this rally was driven by foreign inflows rather than a sell-off, indicating strong confidence in Bolsonaro's potential victory. The firm also noted that the spread between Brazil's 10-year bond and the US 10-year bond has compressed significantly, suggesting potential for further gains in Brazilian assets. Analysts believe that if the spread continues to narrow, the EWZ could trade between $47.80 and $52.20 per share, with current earnings suggesting a valuation range of 11-12 times earnings. Bolsonaro's path to victory remains challenging, requiring him to secure a runoff win, assemble an economic team, and gain congressional support for his policies.