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Ahead Of Election Day, Traders Warm To Leveraged Brazil ETF

September 25, 2018 10:52 am
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The first round of Brazil's presidential election occurs on Sunday, October 7. Some traders are already positioning for that event as highlighted by recent activity in the Direxion Daily MSCI Brazil Bull 3X Shares (NYSE:BRZU).

BRZU looks to deliver triple the daily returns of the MSCI Brazil 25/50 Index, which encompasses about 85 percent of Brazil's equity market capitalization.

What Happened

Leveraged exchange traded funds (ETFs), including BRZU, are designed to be short-term instruments and can be the ideal instruments for risk-tolerant traders to play events such as national elections. Historically, Brazilian can see increased volatility as elections near and in the aftermath of those competitions as markets reconcile the results.

Even without politically-based trades, the MSCI Brazil 25/50 Index is significantly more volatile than the MSCI Emerging Markets Index. The looming presidential election could be triggering more volatility. Over the past month, BRZU's realized volatility is significantly higher than that of any other Direxion leveraged bullish ETF, according to issuer data.

Why It's Important

A recent poll indicates far-right candidate Jair Bolsonaro leading, but that is merely for the first round of Brazil's elections. A run-off will be held Sunday, October 28, assuming no candidate claims a majority on the first ballot, a scenario that appears unlikely.

While Bolsonaro is viewed as a controversial candidate, markets apparently like the idea of him emerging victorious as highlighted by BRZU jumping 24.60 last week.

“Bolsonaro, a former army captain who favors easing gun controls, may have trouble winning a second round race against (Fernando) Haddad as they are tied at 41 percent each, according to Datafolha,” reports Reuters.

Haddad is the replacement on the Workers Party ticket for former president Luiz Inacio Lula da Silva. Lula is incarcerated and cannot run, prompting speculation that if he throws his support behihnd Haddad, the latter becomes a more formidable candidate.

What's Next

Brazilian political outcomes can be difficult to predict, but if BRZU is an accurate gauge, it appears traders like the way things are progressing in Latin America's largest economy. Over the past month, BRZU is averaging daily inflows of $3.33 million, according to Direxion data.

Related Links:

How To Cope With Rising Volatility.

This Bond ETF Started A Revolution.

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