GS Mello Brazil Positioning 1 Month to Elections 7 Sep 2026

GS Mello - Brazil Positioning 1 Month to Elections 7 Sep 2026 Ernesto Mello · Goldman Sachs · Brazil / EM Sales Mon 7 Sep 2026, 1:09pm ET

We are now just 18 sessions away from the 1st round of the Presidential Elections. Recent polls show a much tighter than expected race, setting the market to recover a lot of the underperformance vs. EM peers over the last couple of weeks. Ibov rallied >10% since Aug-19th. RSI is currently at 76, above 70 for the first time since April (when the Ibov was at the ATH near the 200k points mark), even after this sharp recovery we are still 7% away from those levels.

Prediction markets have Flavio odds of winning the election at 39.6%. The correlation of Flavio's odds-on prediction markets vs. EWZ price has been 0.792.

Using a simple regression of EWZ price vs. traded odds, the expected value of EWZ on an eventual change in government seems to be around US$49.88/shr (+31% vs. Friday's close) -> on the other hand the residual value of the regression is US$30.18/shr (-20.3% from Friday's close) - where the market seems to be pricing a continuation of the current administration. So, if the markets were to price the event as a coinflip on the coming weeks, EWZ should still have room to rally ~5.6% until the first round of the election.

Over the last 6 election cycles, EWZ has rallied on the final month 3 times (>7% in 2022, 2018 and 2010). It was flat once (2006) and traded lower 2 times (>10% sell off in 2002 and 2014).