JPMorgan and Deutsche Bank have both upgraded their outlook on Brazilian stocks to overweight after Flávio Bolsonaro's strong performance in the first round of elections, which sets the stage for a runoff on October 25. Bolsonaro is perceived as a market-friendly candidate, promising tax reductions and reduced government spending, which has led to a surge in investor confidence.
Following the election results, Brazil's Bovespa index jumped 7.7%, marking its largest one-day increase since March 2020, while the iShares MSCI Brazil ETF (EWZ) rose 12.5%, its best daily performance in over three years.
JPMorgan strategist Emy Shayo Cherman noted that the potential for further gains in Brazilian markets is greater than in other Latin American markets, driven by a stronger Brazilian real and expectations for quicker interest rate cuts.
Deutsche Bank's Nikolaj Lippmann highlighted that Brazilian stocks were under-owned prior to the elections, suggesting room for growth as local investors re-enter the equity market. He pointed out that current allocations to local equities are around 5%, just above historical lows, indicating significant upside potential.
For U.S. investors, the EWZ ETF offers a straightforward way to gain exposure to Brazilian equities, which have risen 35% year to date. Additionally, JPMorgan analyst Yuri Fernandes upgraded Banco Bradesco to overweight, citing its potential for recovery despite current challenges