Brazil’s Oct. 25 Runoff Election Could Spark a 100%+ Rally. Here’s a One-Fund Way to Play It.

By Sean Brodrick

How would you like to own something that surges 124%?

That’s what happened to Argentina’s benchmark stock index, the S&P Merval, after Javier Milei took office in December 2023. 

In U.S. dollar terms, the gain was still a whopping 66.8%.

Now, another Latin American giant could be setting up for its own political — and potentially market — earthquake.

I’m talking about Brazil.

Conservative Flávio Bolsonaro finished first in Brazil’s initial presidential vote, ahead of President Luiz Inácio Lula da Silva. 

The two face off in the decisive second round on Oct. 25.

And investors are already betting that a Bolsonaro victory could put Brazil on a more business-friendly path.

The Bolsonaro Boom Has Already Started

Brazilian stocks exploded higher after the Oct. 4 vote, with the benchmark Bovespa surging as much as 8% in early trading the next day, though it has since pulled back.

Why?

Money is sniffing out the possibility of lower taxes, tighter government spending and a government much friendlier to private capital.

If Bolsonaro wins and delivers real reform, this could become a much bigger story.

That’s because Brazil isn't Argentina.

Brazil is already attracting enormous amounts of foreign capital — $86.6 billion in foreign direct investment in the 12 months through August.

In other words, Bolsonaro wouldn't have to rescue an economic basket case. He could potentially take an economy investors already want to invest in and make it much more attractive.

Cut Taxes & Unleash the Money

Bolsonaro is proposing to reduce payroll taxes and review parts of Brazil’s consumption-tax overhaul.

His economic team also wants to revisit Lula-era measures, including the dividend tax and increases in Brazil’s Financial Transactions Tax, which hits corporate credit and foreign-exchange transactions.

And there’s a potential gift for Brazil’s huge energy industry: Bolsonaro wants to eliminate the 12% crude-oil export tax introduced this year.

Cutting these taxes could make it cheaper to invest, hire, produce and export. 

That means potentially higher profits — and higher stock prices.

Even better, Bolsonaro’s Liberal Party has strengthened its position in Brazil’s legislature, giving him more political muscle to push reforms through if he wins.

Of course, proposals aren't laws. Political horse-trading, opposition and plenty of opportunities to water down reforms will follow.

But the opportunity is real.

A Great Way to Play Brazil

You could try to pick individual Brazilian winners, but there’s an easier way: Buy the iShares MSCI Brazil ETF (EWZ).

EWZ gives you broad exposure to Brazilian stocks in a single, highly liquid U.S.-traded fund. 

Its portfolio is positioned where I want it if Brazil experiences a reform-driven investment boom.

Financials make up 38.4% of the fund. Energy accounts for 16.1%, utilities 13.2% and materials 11.5%.

Its biggest holdings include Brazilian mining giant Vale, Nu Holdings, Itaú Unibanco and Petrobras.

That gives you exposure not just to Brazil’s enormous natural-resource wealth, but to the banks and businesses that could benefit as investment pours into the country.

Let’s look at the weekly chart.

You can see EWZ recently pushed above overhead resistance, breaking out to the upside. Shares currently sit near $43.72. 

The easiest path is higher. 

There are risks to this trade. Bolsonaro still has to win. His reforms have to pass. And EWZ was already up some 35% through Oct. 12.

But if Brazil really is embarking on a pro-business reform cycle, I don't think this story ends with one big post-election rally.

Argentina showed us what can happen when investors suddenly decide a country is moving in the right direction. Brazil could be next.

All the best,

Sean

P.S. There’s another high-powered election window right here in the U.S. 

In fact, here at Weiss Research, we have an AI-driven system that identifies the best ways to profit from the midterm election. But that’s approaching fast.

So, on Tuesday, Oct. 20, John Burke will host a special event: “The Ultimate AI Briefing.”