Brazilian Equities: Undervalued and Poised for Re-Rating

Brazil, the largest economy in South America, is drawing renewed investor interest amid improving macroeconomic fundamentals and attractive valuations. Structural reforms have strengthened fiscal and monetary stability, bringing unemployment down to 6.2% in May 2025 from double-digit levels over the past decade, while inflation has moderated to 5.3%. These trends may pave the way for the central bank to reduce the currently high SELIC rate, which stands at 15%, potentially boosting economic growth.

Although the MSCI Brazil Index has rebounded by c.15% since April 2025, it remains c.40% below its pre-COVID levels, reflecting concerns about political stability, inflation, and weak corporate earnings. However, attractive valuations, along with a healthy dividend yield (around 6% vs. 2.8% for broader emerging markets), offer downside protection. With potential rate cuts, fiscal improvements, and a possible political change in 2026, Brazil appears well-positioned for a re-rating as global capital revisits under-owned emerging markets beyond Asia.