Brazil Equity Strategy: A Different Playbook? Market Performance on Elections

Brazil is the best performing EM over the past month as polls started to narrow showing the potential for an opposition win in the October elections. Global factors usually do most of the heavy lifting in LatAm, but sometimes — especially during elections — local factors can take the driver's seat. Since July 1, when Flavio bottomed, the market rose by 0.25% on average each day that Flavio gained in the polls, and September MTD average daily move reached 0.72%. This performance is atypical for election periods, as Brazil has usually not done well in both relative and absolute terms during elections, though it has generally rallied in the month of the election. The most similar setup and market pricing is 2014 (Dilma vs Aecio). There is an important difference relative to 2014 which could lead to greater upside in the month of the election: the winner would be the opposition, and the upside could appear earlier with a more conservative Senate. On valuation, with a 12-mo-fwd P/E of 8.6x,