A Guide for Trading Brazilian Assets Overseas on Election Night

Here’s a list of the assets to keep an eye on before Brazil opens for business following the presidential runoff

Jair Bolsonaro and Lula da Silva will face each other in a runoff on October 30.

Jair Bolsonaro and Lula da Silva will face each other in a runoff on October 30.(Bloomberg/Bloomberg Creative Photos)

By Vinícius Andrade
October 28, 2022 | 12:50 PM

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Bloomberg — Investors seeking to wager on Brazil after Sunday’s presidential runoff vote can turn to Asia to place their first trades.

Polls show President Jair Bolsonaro may have narrowed the gap with front-runner Luiz Inacio Lula da Silva since the first round on Oct. 2, when the incumbent saw stronger-than-expected support. Recent surveys signaled his momentum might be fading, and the race remains tight.

The Next Funds Ibovespa Linked ETF, a Japanese-listed exchange-traded fund that tracks the benchmark Ibovespa (IBOV) equity index, might be the first option for traders beginning at 8 p.m. in New York on Sunday. Others include Asian stocks with Brazil exposure, such as South Korea’s Wireless Power, which got about 8% of its revenue from Latin America’s largest economy last year, and Tokyo-based agrochemicals maker Nihon Nohyaku Co.

Once Europe opens, investors will have the opportunity to place wagers on sovereign dollar-denominated bonds. The most liquid government note is the one due 2031, followed by bonds maturing in 2037 and 2041.

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Some of the nation’s biggest companies, including state-owned oil producer Petroleo Brasileiro SA (PETR3 PETR4) and mining giant Vale SA (VALE3), have debt and stock listed in Europe.

The region is also home to the parents of some Brazil-listed companies, such as French grocer Casino Guichard-Perrachon SA and utility Engie as well as Spanish telecom operator Telefonica SA and lender Banco Santander SA -- all of which could be active. Stellantis NV (STLA), the maker of Jeep SUVs and Peugeot cars, might be in focus as it gets about 9.2% of its revenue from South America, with Brazil accounting for a large part of it.

For-profit education stocks and retailers that cater to lower-income Brazilians could see renewed interest in case Lula wins, while Bolsonaro’s re-election might increase the appetite for state-controlled companies, on bets the former army captain will move forward with his privatization push.

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Asia Is the First Stop for Investors Trading Brazil Assets on Election Night

Currency traders won’t have many ways to bet on the real directly, though the Mexican peso will be open and is seen as a rough proxy for risk. Local currency and swap markets start operations at 8 a.m. New York time on Monday, while stocks begin an hour later.

Here’s a list of the assets to keep an eye on before Brazil opens for business:

Currency

Brazilian real trading is restricted to local hours, so the main currency to watch will be the Mexican peso, which is generally fairly liquid and is often used as a hedge for the real and emerging-market risk.

  • Mexican peso (MXN)

Bonds

Some of Brazil’s government and corporate dollar-denominated bonds are traded in European exchanges and may see price action. Credit default swap contracts trade all day, although liquidity is thinner in late hours. Here’s a list of some of the main ones to watch:

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  • BRAZIL 3 ¾ 09/12/31 (USD)
  • BRAZIL 7 ⅛ 01/20/37 (USD)
  • BRAZIL 5 ⅝ 01/07/41 (USD)
  • PETBRA 6.85 06/05/2115 (USD)
  • PETBRA 5.6 01/03/31 (USD)
  • VALEBZ 3 ¾ 07/08/30 (USD)
  • BANBRA 9 PERP (USD)
  • BRAZIL CDS USD SR 5Y D14

ETFs

There are some ETFs traded in Asia, Europe and the US that track Brazilian assets. Here are the ones to watch:

  • iShares MSCI Brazil ETF (US)
  • Next Funds Ibovespa Linked ETF (Japan)
  • Franklin FTSE Brazil ETF (US)
  • Direxion Daily MSCI Brazil Bull 2X Shares (US)
  • ProShares UltraShort MSCI Brazil Capped (US)
  • iShares MSCI Brazil UCITS ETF USD Dist (London)
  • HSBC MSCI Brazil UCITS ETF (London)
  • Lyxor MSCI Brazil UCITS ETF (Paris)
  • Xtrackers MSCI Brazil UCITS ETF (Germany)

Stocks

There are the stocks of Brazilian companies trading overseas.

  • Petrobras (Germany)
  • Vale (Germany)

Brazil exposure

Shares in companies that rely on Brazil for a significant portion of their revenue could be active:

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Asia

  • Wireless Power, Nihon Nohyaku

EMEA

  • Carrefour, Casino, AB-InBev, Home24, Santander, Telefonica, Telecom Italia, EDP, Stellantis

North America

  • Sea Ltd., Arcos Dorados Holdings Inc. (ARCO), MercadoLibre Inc. (MELI), Mosaic, XP Inc., PagSeguro Ltd., Nu Holdings (NU), StoneCo, Inter & Co., Arco Platform, Afya, AES Corp.
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