Here’s how to trade Brazilian assets abroad on election night

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(Bloomberg) – Investors looking to bet on Brazil after its presidential run-off can look to Asia to place their first trades.

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

Polls published before the polls opened mainly showed that Luiz Inacio Lula da Silva held a small lead over President Jair Bolsonaro. The incumbent received stronger-than-expected support in the first round of voting and tried to improve his ratings by unveiling a series of last-minute economic commitments.

Once Europe opens, investors will be able to bet on dollar-denominated sovereign bonds. The most liquid government note is that which matures in 2031, followed by bonds maturing in 2037 and 2041.

Some of the country’s biggest companies, including state oil producer Petroleo Brasileiro SA and mining giant Vale SA, have debt and shares listed in Europe.

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

For-profit education stocks and retailers that cater to low-income Brazilians could see renewed interest if Lula wins, while Bolsonaro’s re-election could increase appetite for government-controlled companies. the state, on bets that the former army captain will continue his privatization push.

Forex traders won’t have many ways to bet directly on the real, although the Mexican peso is open and is considered a proxy for risk. Local currency and swap markets begin trading at 8 a.m. New York time on Monday, while stocks start an hour later.

Here is a list of assets to watch before Brazil opens:

Currency

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

Obligations

Some of Brazil’s dollar-denominated government and corporate bonds are traded on European stock exchanges and could see their prices change. Credit default swaps trade throughout the day, although liquidity is thinner at the end of the day. Here is a list of some of the main ones to watch out for:

  • BRAZIL 3 ¾ 09/12/31 (USD)

  • BRAZIL 7 ⅛ 01/20/37 (USD)

  • BRAZIL 5 ⅝ 01/07/41 (USD)

  • PETBRA 6.85 05/06/2115 (USD)

  • PETBRA 5.6 03/01/31 (USD)

  • VALEBZ 3 ¾ 08/07/30 (USD)

  • BANBRA 9 PERP (USD)

  • BRAZIL CDS USD SR 5Y D14

AND F

Some ETFs traded in Asia, Europe and the United States track Brazilian assets. Here are the ones to watch out for:

  • 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)

Shares

There are the shares of Brazilian companies that trade abroad.

  • Petrobras (Germany)

  • Vale (Germany)

Exhibition in Brazil

Stocks of companies that depend on Brazil for a significant portion of their revenue could be active:

  • Asia

  • EMEA

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

  • North America

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

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