GS Mello GS BRAZIL POSITIONING The Week After

GS Mello - GS BRAZIL POSITIONING The Week After 13 Oct 2026 Ernesto Mello · Goldman Sachs · FICC & Equities 13 Oct 2026

Punchline: We’ve seen a lot of demand in macro products, large EWZ buying from real money, and foreign macro-HFs buying custom baskets that are leveraged to the current market scenario. The preferred vehicle for adding exposure has been {GSBZRATE Index}. Locals have been mostly on the sidelines of the story, trimming outperformers and adding underperformers after very extreme moves. Finally, Los have been net sellers, reducing their relative OW in Utes and Fins. In options, we’ve mostly seen large upside prints throughout the week, but on late Friday some large notional low delta put spreads printed in both EWZ and Ibov.

Last week was the busiest week ever in Brazil following the unexpected lead of Flavio over Lula on the first round of the general elections. Trading volumes surged to US$8.7bn a day (Monday was a record of US$20bn traded on a regular session).

Orange = 2026 Notl Traded (20DMA) Shaded Area = Min and Max of all the past 30yrs

Price action was no different. EWZ moved +12.5% in a single day. This was a 5-sigma event (assuming gaussian distribution that would be a 1 in 3.5mn event).

But we know that is not the case. In fact, since EWZ inception in 2000, there have been 5 other instances of a 1 day move larger than >12.5%. Twice during the sharp recovering from the pandemic in 2020, and 3x during the recovery from the 2008 crisis. What is interesting now, is that it seems to be the first move of this order of magnitude not coming from a sharp sell-off.

EWZ Indexed Returns: 30 Days Before to 5 Days After Event Dates (Base = 100) – White Line = Now The rally was driven by foreign inflow – Monday was the largest 1-day-inflow ever at US$2bn. As you can imagine, our desk was faced with a wave of incomings, on “how do I trade”, and “how far this can go”. We’ve been seeing a lot of interest on our {GSBZRATE Index} and {GSBZRIGH Index}. Both have been outperforming Ibov and EWZ by >15% since election. GS was the largest net buyer of BZ listed names over the last 3 sessions, driven by the almost US$700mn demand for those custom baskets. So, was that it? No, let me zoom out for you: Medium- and long-term rates have already compressed 150bps over the last 2 weeks – the spread of BZ 10YR vs. US 10YR is now at around 7.2%. After 2020, it traded as low as 6.5% (-120bps), and the lows were at 4.8% (-240bps) Historically for every 100bps compression of this spread EWZ price has increased by around 8.3%. (vs. GSBZRATE in USD at 11.2%). If rates do come down to recent lows, we could see EWZ trading between US$47.80/shr and US$52.20/shr Fundamentally it does not seem to be extremely farfetched. EWZ EPS is running at ~US$4.4/shr, which would mean it trading at 11-12x if trading around US$50/shr. While this is significantly above screens, it is below the pre-2020 levels of 14x.

For further compression of rates and multiple expansion, we think the market will have to climb a steep wall of worry and clear the following checkpoints: (i) Flavio wining on the runoff at Oct-25th (ii) Flavio announcing a highly experienced economic advisory team. (iii) Economic team proposing a fiscally sensible plan that is deliverable (iv) Flavio will have to enact changes with the newly elected congress. We’ve already started to see some progress in each of those 4 items, but all remain open. *

1/ Brazil Local Asset Management Industry: Equity and Macro funds flows (USD)

2/ Participant last 5 years Flow Summary (USD):

IBOV Breadth measures how the index trades relative to its constituents: it computes the IBOV distance from its 52-week high minus the median distance of all index constituents from their individual 52-week highs.