Goldman Sachs: First Round Results of Brazil's Election Trigger "Busiest Week in History", Foreign Investors Bet on Bolsonaro's Victory

Foreign capital has flooded into the Brazilian market, with Goldman Sachs' trading desk describing last week as "the busiest week in Brazil’s history." The trigger for all this was the unexpected lead of right-wing Senator Jair Bolsonaro over Lula in the first round of the Brazilian presidential election, defying mainstream poll expectations.

According to Odaily Planet Daily, Brazil's benchmark stock index Bovespa has surged 12.2% so far this month and closed at a historical high last Friday, marking the largest single-week gain since April 9, 2020. In the same period, the S&P 500 gained only about 2%.

The iShares MSCI Brazil ETF (EWZ), which tracks the Brazilian stock market, has soared nearly 17% this month, with a USD-denominated gain of 37% year-to-date, far outpacing the S&P 500. Meanwhile, the ETF saw net inflows as high as $2.3 billion in a single week, pushing total net inflows for 2026 to $3.5 billion.

After the surge in the Brazilian stock market following Bolsonaro's first-round victory, Goldman Sachs analysts provided clients with a detailed analysis of foreign capital inflows, focusing on how international investors are flooding into the market in hopes of a Bolsonaro victory in the runoff.

Currently, Bolsonaro and Lula will face off in the second round on October 25. The latest polls show Bolsonaro maintaining his lead, with prediction market platform Polymarket giving him an 86.5% probability of winning.

Goldman Sachs’ trading desk detailed the market trends following the first round of elections in a report sent to clients.

Last Monday, single-day trading volume reached $20 billion, while average daily volume also jumped to $8.7 billion, both hitting historic extremes.

On the same day, the iShares MSCI Brazil ETF, which tracks the Brazilian stock market, rose 12.5% in a single session. Goldman Sachs noted that since the ETF’s inception in 2000, single-day increases over 12.5% have only occurred five times.

All the previous instances happened either during the rapid rebound of the covid pandemic in 2020 or the recovery phase after the 2008 financial crisis.

Goldman Sachs specifically emphasized that this is, so far, the only instance of a similarly large single-day surge "not stemming from a violent sell-off rebound," which carries unique market implications.

Goldman Sachs stated that its trading desk was the largest net buyer of Brazilian-listed stocks over the past three trading days, driven by about $700 million in demand for customized equity baskets. Two related products (GSBZRATE Index and GSBZRIGH Index) have both outperformed the Ibovespa Index and EWZ by more than 15% since the election.

Goldman Sachs’ trading desk further evaluated the upside potential of Brazilian assets from a medium- to long-term perspective, with the core logic lying in valuation re-rating driven by interest rate compression.

Data shows that Brazilian mid- to long-term interest rates have compressed by about 150 basis points over the past two weeks, and the yield spread between Brazilian 10-year government bonds and US 10-year treasuries has narrowed to around 7.2%. Goldman Sachs pointed out that after 2020, the spread fell as low as 6.5%, with a historical low of 4.8%.

Based on historical patterns, Goldman Sachs estimates that for every 100-basis point reduction in the yield spread, EWZ’s price responds with approximately an 8.3% increase. If interest rates return to recent lows, the theoretical price range for EWZ would be roughly $47.80 to $52.20 per share.

From a fundamental perspective, Goldman Sachs believes that this valuation is not out of reach. EWZ's current earnings per share are about $4.4, so if the stock price reaches around $50, the corresponding price-to-earnings ratio would be about 11 to 12 times. While higher than present levels, it's still below the pre-2020 historical level of 14 times.

Both polls and prediction markets show Bolsonaro holds an advantage in the runoff:

• The latest PoderData/Aya poll shows him leading Lula 51% to 49%, a neck-and-neck race within the statistical margin of error;
• The concurrent survey by BTG Pactual/Nexus shows Bolsonaro with a more significant lead, winning 52% to 48%, with a margin of error of two percentage points;
• The Polymarket platform marks his probability of winning at 86.5%;
• Consulting firm Ideia Big Data, at an event hosted by UBS, also gave him an 85% chance of winning.

Nevertheless, Goldman Sachs explicitly listed four hurdles that Bolsonaro must overcome in its report: winning at the end-of-the-month runoff, assembling a credible economic team, offering a realistic fiscal plan, and garnering sufficient congressional support to implement his agenda.

On the political front, Bolsonaro received endorsements from four center-right parties last week, with his coalition continuing to expand.

São Paulo Governor Tarcísio de Freitas publicly supported him at a Republican event, saying, "We cannot become a lost generation," and called for the continuation of the political course started by Bolsonaro’s father.