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Capital Ideas™ 
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Chart in Focus
On sale: What could spur Brazilian stocks?
Matt Hochstetler
Equity Portfolio Manager
June 10, 2025

Brazil’s equity market is known for its roller-coaster swings, and this year is no different. The MSCI Brazil Index surged 18% year-to-date through June 6, making it one of the strongest equity markets worldwide amid a broader rotation into non-U.S. stocks.


Despite the rally, Brazil’s equity market remains very inexpensive on an absolute and relative basis. It trades at eight times earnings on a 12-month forward basis, below its 20-year average of 10 times. As the chart shows, Brazilian stocks trade at a large discount to the broader emerging markets universe, near their lowest relative valuation in 20 years.


Brazil trades at substantial discount to emerging markets

A two-line chart compares the valuation of Brazilian equities and a broader emerging markets index, along with Brazil’s benchmark interest rate over a 20-year period. The first line shows the price-to-earnings (P/E) of the MSCI Brazil Index relative to the MSCI Emerging Markets Index on a scale from zero to 1.4. The other line shows Brazil’s benchmark interest rate over the period from 2005 to 2025. A breakout box notes Brazilian stocks are currently trading at a 20% discount, below emerging markets, as well as below the 20-year average P/E ratio of 0.9. The relative P/E line settles near a relative ratio of 0.7 at the end of the period. Brazil’s interest rate has also risen to one of its highest levels over the period, settling at 14.75%. The breakout box also notes that Brazilian stocks are rate sensitive.

Sources: Capital Group, FactSet, MSCI. Data as of May 31, 2025. NTM: Next 12 months. P/E: price-to-earnings. The Brazil interest rate represents the Selic rate used by the Central Bank of Brazil.

“Brazil is a market I’m watching closely for selective opportunities,” says Matt Hochstetler, an equity portfolio manager on the Capital Group New Geography Equity ETF (CGNG). “Valuation levels are still interesting in many cases, and there are some high-quality companies with solid management teams to consider.”


Here are several dynamics that could spur a higher rerating for Brazilian stocks. 


The end of a sharp interest rate hiking cycle. Despite a resilient economy, since May 2024 Brazil’s central bank has raised rates by 400 basis points to blunt inflation. At 14.75%, the country’s benchmark rate is near a two-decade high, making government bond yields attractive against equities. Market expectations that the central bank could start to cut rates by the end of the year would catalyze stocks. The high interest rate environment has led many companies to prioritize debt reduction and deleveraging.


Sustained dollar weakness. A sharp devaluation of the Brazilian real against the dollar in 2024 added to inflationary pressures. But with the real stabilizing, inflation could moderate moving forward, potentially allowing the Brazilian central bank to lower interest rates if the government can make strides to shore up its budget deficit.


An improved political climate. Political instability has roiled Brazil’s stock market for several years with power swinging between far-right and far-left presidents. With a presidential election next year, any hint of power shifting to a more centrist leader could be positive for market sentiment.


Trade opportunities from the ongoing tariff war. Brazil may find itself at an advantage. Brazil is one of the few G20 countries to have a trade deficit with the U.S. As one of the world’s largest producers of agricultural products and other commodities, Brazil may also find increased trade opportunities with China, which is grappling with U.S. tariffs. 


Matt Hochstetler is an equity portfolio manager with 20 years of investment industry experience (as of 12/31/2024). He holds an MBA from Harvard and a bachelor’s degree in international finance and economics from Georgetown University. 

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MSCI Brazil Index is designed to measure the performance of the large- and mid-cap segments of the Brazilian market.

 

MSCI Emerging Markets Index is a free-float-adjusted market-capitalization-weighted index designed to measure equity market results across global emerging markets, consisting of more than 20 emerging markets country indexes.

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