Brazil's tightening presidential race could drive a sharp repricing of local equities.
A new Goldman Sachs survey of 70 global investors found that half see at least 20% upside in EWZ, the US-listed Brazil equity ETF, by year-end if right-wing challenger Flávio Bolsonaro defeats socialist President Luiz Inácio Lula da Silva. The first round is scheduled for Oct. 4, with a potential runoff on Oct. 25.
Lula (Left); Bolsonaro (Right)Goldman Sachs Managing Director Nelson Armbrust provided clients color on the upcoming elections in South America, which could cement a historic, once-in-a-generation rightward shift across the continent.
Related:
He focused on positioning:
Flávio Bolsonaro (right-leaning candidate) is gaining momentum; polls show him tied or closing the gap in the second round.
As a reminder, pools don't adjust for the likely voter (aka: the people that actually turn up on the day to cast a vote, no mail ballot votes in Brazil), and historically there has been higher absence from Lula's voters.
We just did a survey with 70 global investors about their cross-asset views in Brazil, the bottom line:
Foreign capital is starting to come back to Brazil as we near the event:
We have seen massive buying of upside from investors, EWZ Call Open Interest at ALL TIME HIGHS:
Implementation: I like EWZ Call Spreads for November (runoff is October 25th) and going long our Rate Sensitive basket (GSBZRATE Index).
Implied 2 month vols have risen from ~30v to ~45v and past election cycles (noted on the graph below) show that vols could keep moving higher.
But the cost of the 30% delta call vs the 10% delta call has been stable lately and is historically cheap (21st percentile).
EWZ Nov 42 50 call spread = $1.00 offer 8x max payout, ref 37.20, ~45v ATMF, 23% delta, max loss is premium paid.
Another way to implement is going long GSBZRATE Index, they are the 30 stocks in Ibovespa most correlated to 5y rates. It is composed of Fins (38%), Real Estate (17%), Industrials (17%), Utilities (12%), Cons Disc (9%) and Materials (6%). You can trade U$75mn a day at 10% volume.
Brazil has the highest real rate in the WORLD (~10%) and is the most correlated EM Equity with local Rates. If rates come down, the move in Equities could be meaningful.
Below is a chart of the basket's P/E vs local short-term rates (Jan29 rates) inverted. As flagged by Louis Miller, one could expect a ~30%+ re-rating in GSBZRATE (P/E going from 9x to 12x) if the local rates price in 200bps of cuts – from my investors discussions, 200-300bps is where most expect to see short term rates by year end if Flavio wins.
Historically when the market prices cuts, our Brazil Rate Sensitive Basket delivered ~3x the Ibovespa's return (table below). The basket struggles if rates are cut due to recession risk or if there is a commodity boom (1/3 of Ibovespa is commods). Quick explanation below on periods the basket did not outperform Ibovespa (and I don't expect any of these scenarios to play out):
Earlier this month, Polymarket showed Bolsonaro overtaking Lula for the first time, and that lead has held through Saturday morning. Bolsonaro's odds of winning currently stand at 57%, while Lula's are around 42%.
Brazilian stocks have rebounded alongside rising Polymarket bets on a Bolsonaro victory.
A Bolsonaro win would cement a rightward shift after socialists spent years destroying the continent with nation-killing progressive experiments.
Also, across the pond in Europe, Nomura analysts expect an 18-month election cycle that sees the continent "lurching right."
Tyler Durden Sat, 09/19/2026 - 21:35Authored by Jeremy Portnoy via RealClearInvestigations,
The Small Business Administration potentially made $11.5 million in improper payments to banks after overruling its own employees who had recommended reducing or denying government guarantees on 16 failed small-business loans.
For another 13 failed loans, SBA took so long to review them that the six-year statute of limitations expired, wasting another $5.4 million, according to an Aug. 27 inspector general report.
Key facts: SBA's 7(a) program helps startups with a risky business model get loans, but it does not generally lend taxpayer money directly. Private banks make loans of up to $5 million, and the government promises to cover as much as 85% of the loss if the borrower defaults.
But taxpayers only have to honor that guarantee when the bank follows SBA rules. If a bank failed to properly determine whether a borrower could repay the loan, verify required investments or follow other safeguards, SBA can reduce or deny the payout to the bank.
Auditors reviewed 32 failed loans where SBA employees recommended reducing or denying the payouts to banks, but higher-level reviewers later overturned those decisions.
For 16 of the 32 loans, auditors found insufficient evidence to justify the reversal, resulting in $11.5 million worth of potential improper payments. That included almost $4.9 million loaned to borrowers who never showed evidence they could repay the money.
One small business defaulted within 18 months. The bank argued that the small business had a sound strategy, but it failed due to the unforeseen loss of a major customer. The bank provided no evidence for its claim, but the SBA paid the guarantee anyway.
The SBA is also taking far too long to review high-risk loans, the audit found. The agency has only six years to sue a bank for violating the loan terms, but auditors found 13 loans where impropriety was not discovered until that deadline had passed. Two of them were not reviewed for more than 20 years after the loan guarantee was paid.
The SBA legally could have withheld other federal payments to the banks even after the six-year time limit expired, but the SBA has no process for doing so, the audit found.
SBA guaranteed $37 billion through 77,600 new 7(a) loans in fiscal year 2025.
Summary: A government loan guarantee is supposed to protect lenders from legitimate business failures, not protect them from following the rules. Taking 20 years to decide which is which leaves taxpayers holding the bag.
The #WasteOfTheDay is brought to you by the forensic auditors at OpenTheBooks.com
Tyler Durden Sat, 09/19/2026 - 21:00