Brazil Stocks Volatile Amid Election Shifts

The iShares MSCI Brazil ETF (EWZ) experienced significant volatility in recent weeks, with a sharp decline following the announcement that incumbent President Luiz Inácio Lula da Silva had won the presidential runoff. The ETF dropped nearly 20% on October 26, marking a significant reversal from its earlier gains.

Earlier in the month, the ETF had surged 13% after right-wing candidate Flávio Bolsonaro finished first in the initial round of voting. This marked the fifth time in the ETF's history that it had posted a double-digit gain in a single session.

Investors had poured approximately $4 billion into EWZ in the four weeks leading up to the runoff, reflecting optimism about a Bolsonaro victory. When the election results shifted, investors quickly unwound those positions, leading to the steep decline.

Despite the recent volatility, Brazil's economic fundamentals remain strong, with low unemployment and a resilient economy. The International Monetary Fund expects Brazil's economy to grow 2.2% in 2026, indicating continued growth despite political uncertainty.

Brazil also benefits from a relatively young population, with a median age of around 35 and a population of approximately 214 million. This demographic profile supports consumer spending and workforce growth, providing a foundation for long-term economic expansion.

Foreign direct investment in Brazil totaled about $88 billion over the 12 months through September, according to Brazil's central bank. The report anticipates this figure could approach $100 billion by year-end, further strengthening the country's economic outlook.