Latin ETFs Surge Amid Brazil Election... Bonds Also Flash Green

Right-Wing Candidate Takes Lead in First Round of Brazil's Presidential Election
Market Anticipates Pro-Business Policies and Fiscal Policy Adjustments

After a right-wing candidate unexpectedly took first place in the first round of Brazil's presidential election, both the stock and bond markets surged. The Brazil-related exchange-traded funds (ETFs) even ranked first in domestic ETF returns.

According to ETF Check, the top-performing item on the 6th was "TIGER Latin35," which rose 10.75% in a single day. Even when including leveraged and inverse products, it ranked third overall—behind battery sector leveraged funds—showing a strong upward trend compared to other themes.

TIGER Latin35 is a product that diversifies investment across 35 large-cap stocks in Latin America, including Brazil. It contains American Depositary Receipts (ADRs) listed in the United States, and as of this date, its top holdings—Vale (VALE), Itaú Unibanco (ITUB), and Petrobras (PBR)—are all Brazilian companies.

The result is seen as a reaction to Senator Flavio Bolsonaro, a right-wing candidate, unexpectedly overtaking expectations in the first round of Brazil's presidential election on the 4th (local time). Senator Bolsonaro secured 47% of the vote, ahead of incumbent President Lula da Silva, who received 45%, by a margin of 2 percentage points. The market interpreted the outcome as raising hopes for pro-business policies and a strengthening of fiscal discipline. On the 2nd and 5th, Brazil's Bovespa index surged by 2.6% and 7.7%, respectively, surpassing 200,000 points for the first time ever. The Brazilian real also appreciated by 4.1% against the dollar.

The bond market also responded positively to Senator Bolsonaro's strong performance. The yield on Brazil's 10-year government bonds fell 130 basis points (1bp=0.01 percentage points) compared to the previous session. A decline in bond yields means a rise in bond prices. Sungwoo Heo, a researcher at Hana Securities, explained, "If Bolsonaro wins, expectations for fiscal policy adjustments could lead to a decline in expected inflation and term premiums, resulting in lower long-term rates and a strengthening real. However, there is still no concrete tightening plan, and uncertainties remain, such as potential conflict with the Supreme Court."

Since the rally stems from an election event, caution is needed regarding future volatility. Kim Minsoo, head of the Global ETF Management Team at Mirae Asset Global Investments, commented, "With a runoff election scheduled for the 25th, short-term volatility driven by political events may persist. In the future, factors such as how specific economic policy becomes during the runoff process, the feasibility of fiscal discipline measures, and trends in the real and commodity prices will be key variables determining the direction of stock markets in Brazil and across Latin America."

This content was produced with the assistance of AI translation services.