Global emerging-market equity funds held a record $42.4bn in Brazilian stocks ahead of the presidential election, largely maintaining their positions despite sharp market swings.
Brazil drew a record $42.4 billion from global emerging-market stock funds as investors positioned themselves ahead of a tense election later won by incumbent Luiz Inácio Lula da Silva, according to data from Copley Fund Research. The figures suggest that fund managers were unusually keen on Brazilian equities even as political uncertainty built around the vote.
Copley said Brazil had more money committed to it, relative to its weight in the benchmark, than any other country in a sample of 353 actively managed global emerging-market equity funds overseeing $697 billion. Nearly three-quarters of those funds were overweight Brazil, the highest share for any market, and 98.6% owned at least one Brazilian stock. On average, Brazil accounted for 5.85% of portfolios, ahead of its 4.09% weight in the MSCI emerging markets index at the end of last month.
The allocation came despite sharp swings in Brazilian shares during the election period. According to the data, the benchmark index climbed 7.7% the day after right-wing candidate Flavio Bolsonaro unexpectedly won the first-round vote, then fell almost 14% after Lula took the runoff. Even so, investors largely kept their positions in place, with estimated withdrawals from Brazilian stocks exceeding purchases by only $37 million against the $42.4 billion invested overall.
The flow data also suggest that investors were rotating within Brazil rather than backing away from the market altogether. Copley said managers shifted towards materials companies and away from consumer staples between March and September, with materials attracting an estimated $337 million in net buying and consumer staples seeing $266 million in net selling. Funds that deviated most from the index held roughly twice as much Brazil exposure as passive benchmarks, underscoring how strongly active managers leaned into the country before the vote.
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