MBGA: Make Brazil Great Again

It’s rare to see a nation’s stock market jump more than 10% in a day.

But that’s exactly what happened in Brazil today. The EWZ Brazil ETF popped 13.67% higher.

What happened? Over the weekend, the right-wing presidential candidate won the first round of voting.

Flavio Bolsonaro, son of former president Jair, is now favored to win the runoff on October 25th.

Former president Jair Bolsonaro, with his son and current candidate Flavio Bolsonaro. Photo credit: AP

Conservatives also made progress in Brazil’s Congress.

For those who don’t follow Brazilian politics, this is a big deal. Brazil’s current president, Lula, is a hard-core socialist. Flavio Bolsonaro, meanwhile, is running on a capitalist and nationalist platform.

Flavio has promised to slash government spending, cut taxes, lower interest rates, eliminate bureaucracy, and improve management at state-owned companies (like Petrobras).

Game of Thrones, Brazil Edition

Current President Lula and the Bolsonaros are arch-enemies.

Lula was convicted on corruption charges back in 2017, and spent more than a year in jail.

Jair Bolsonaro was stabbed in the abdomen back in 2018. He was charged with attempting a military coup after his 2022 defeat to Lula.

In 2024, Lula was supposedly the target of an assassination plot by the military.

In December 2025, Jair Bolsonaro was sentenced to 27 years in prison for attempting a coup. Jair alleged election fraud by Lula’s party (sound familiar?).

Up until recently, it looked like Lula would easily win the upcoming election. But prediction markets are now giving Flavio Bolsonaro an 83% chance to win:

Source: Kalshi

If Bolsonaro wins, that’d be a major bullish catalyst for Brazilian stocks.

Yes, politics in Brazil are… dramatic. But hey, that’s the case everywhere these days.

Still Cheap and Hated

I’ve posted the chart below before, but it is worth reviewing again. It shows how Latin American (LatAm) stocks have performed vs U.S. stocks since 1985.

As this chart rises, LatAm stocks are outperforming. As it falls, America is winning.

Source: Tavi Costa of Azuria Capital 

For the past 15 years, it’s been a massacre. American stocks have stomped everybody else.

But the cycle is turning. As I wrote in April, it appears we’ve entered a new period of LatAm outperformance.

If it’s anything like the last major bull market, this could go on for another 3 years, at minimum.

The chart below, via Morgan Stanley, shows the 2003-2007 LatAm bull market (blue) compared to today’s move (red):

When emerging market stocks run, they really run. And Brazil remains my favorite EM pick. The easiest way to play it is the iShares Brazil ETF (EWZ). There is also a small-cap Brazil ETF worth owning (EWZS).

When we first bought Brazil back in February 2025, the market was down in the dumps. The index was trading at a P/E of just 8. The dividend yield was around 8%.

Socialist President Lula was firmly in charge. Investors had lost all faith in the country. But now things are looking up. Political change, a shift in investor sentiment, and valuations are still dirt cheap.

Brazilian large cap stocks trade at a trailing P/E of just 9.9. The forward P/E is 8.6. The dividend yield on EWZ is 5.5%, with room to move up.

With Brazilian stocks today, you get a dividend yield 5.5x higher than the S&P 500. When we first bought in early 2025, the yield was almost 8x higher. The premium attached to U.S. markets today remains at silly levels.

Eventually, of course, there will come a time to lighten up on Brazil and other emerging markets. But my guess is we’re at least 3 years away from that point, and hopefully much longer.

This EM outperformance cycle is just beginning. And Brazil still looks to be the best horse to bet on.