Brazilian stocks are exploding higher
Capital had already started returning
Now we watch for real leadership
Brazilian stocks woke up this morning with a completely different set of expectations.
Flávio Bolsonaro finished first in Sunday’s opening round of Brazil’s presidential election with 47.03% of the valid vote, ahead of incumbent President Luiz Inácio Lula da Silva at 45.16%. Neither cleared 50%, so the two move to an October 25 runoff.
The market did not see that result coming.
Bolsonaro materially outperformed late polling, and Brazilian assets are being repriced aggressively this morning. International Brazil ETFs were already indicating double-digit gains before the U.S. open, while analysts immediately began talking about a potentially more market-friendly fiscal and economic policy mix under a Bolsonaro government.
But I think the more interesting story started before anyone knew Sunday’s result.
Capital had already begun moving back toward Brazil.
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The setup was already there
Zoom out on EWZ.
Brazil has spent most of the last decade going nowhere.
The ETF peaked during the commodity boom, collapsed, recovered, and then spent years grinding sideways through multiple political cycles, recessions, commodity swings and currency moves.
What we have today is not a market that has already gone vertical for five years.
It’s a market emerging from an enormous 10-year base.
That matters.
The election may be the catalyst Brazil needs to kickstart a new secular bull market.
EWZ had already been pushing toward the upper end of its multi-year range.
And when I look at situations like this, I don’t want to ask:
“Is Brazil cheap?”
I want to ask:
Is the market beginning to treat Brazil differently?
Price is giving us the first indication that the answer may be yes.
Money had already started coming back
This is where our flow data gets interesting.
EWZ took in approximately:
+$965 million in January
+$502 million in February
+$147 million in March
And then a massive +$1.52 billion in April.. the largest monthly inflow in our entire 2018–2026 dataset.
Then the tone changed.
May through August produced four straight months of outflows, including roughly -$816 million in June and -$891 million in August.
Political uncertainty was rising. Capital left.
Then something changed again.
September flipped back positive.
EWZ attracted approximately +$249 million.
Brazil-focused ETFs as a group took in roughly +$266 million.
Meanwhile Mexico-focused ETFs lost approximately $217 million.
That doesn’t mean investors somehow knew the election result.
They didn’t.
But it does tell us that Brazilian assets had already begun attracting capital again before the catalyst arrived.
That’s the combination I want to pay attention to:
Improving flows + improving price + a catalyst capable of changing expectations.
Now we see whether the market follows through.
Brazil has a lot of relative strength to reclaim
There’s another chart I’m watching closely.
This is Brazil relative to Latin America.
And Brazil has been a long-term underperformer.
The EWZ/ILF ratio has been trending lower for years and recently reached the lower end of its historical range.
That isn’t bullish by itself.
Weak things can stay weak for a very long time.
What interests me is what happens if that trend begins reversing at the same time the absolute chart is breaking out and capital is returning.
That would be a very different signal.
Because then Brazil isn’t simply rising with Latin America.
Brazil is becoming a leader inside Latin America.
And leadership is where I want to spend my time.
The election is the catalyst. The trend is the trade.
It would be very easy to turn this into a political newsletter.
That’s not what I’m interested in.
You can have whatever opinion you want about Lula, Bolsonaro, fiscal policy or Brazilian politics.
The market does not care about our political identities.
What matters to me is what traders are doing with their money.
Right now, they are telling us the election changed the probability distribution.
A Bolsonaro presidency is being interpreted as potentially more favorable for fiscal restraint, privatization and market-oriented reforms, which helps explain today’s violent reaction. But the runoff is still three weeks away, and policy expectations are not policy outcomes.
So I don’t want to chase a one day gap simply because it looks exciting.
I want to see whether today becomes the beginning of something larger.
Does EWZ hold the gap?
Do flows accelerate in October?
Does Brazil begin outperforming ILF?
Do more Brazil ETFs participate?
And most importantly:
Where does leadership emerge underneath the country index?
That’s where this becomes a TTI trade instead of a political bet.
Country → sector → industry → stock
This is where the Market Blueprint takes over.
We’ve identified something interesting at the country level.
Now we drill down.
Which Brazilian sectors are attracting the most capital?
Banks? Energy? Materials? Consumer?
Which industries are outperforming inside those sectors?
And then which individual companies are showing the strongest trend, relative strength and momentum?
That’s how I want to approach this.
Not:
“Bolsonaro won Round 1. Buy Brazil.”
But:
Something changed. Capital is responding. Now find where the market is rewarding that change most aggressively.
That’s a much better trade.
Brazil may turn out to be one of the more important global opportunities heading into year-end.. or today may simply be a violent political repricing that fades once the excitement wears off.
We don’t need to guess.
We have a framework.
Follow the money. Watch the relative strength. Find the leaders.
And if Brazil really is waking up?
I want us there early enough for it to matter.
Follow the money,
Hamilton
Founder, The Trading Initiative
P.S. Inside The Trading Initiative, this is exactly how we work through new opportunities: start with the bigger capital-flow shift, narrow into the strongest sectors and industries, then find the individual stocks actually leading. If you want the Trade Desk, research, trade alerts and live coaching as we work through setups like Brazil in real time, join TTI.
That tracking of where the money is coming from is perfect, our time has finally come!