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EWZ: Why Brazilian Equities Are Poised to Shine in Today’s Global Macro Environment
When global capital shifts, opportunities emerge where few are looking. Right now, the case for Brazilian equities — and by extension, the iShares MSCI Brazil ETF (EWZ) — is becoming increasingly compelling. Between currency dynamics, interest rate positioning, and deeply discounted valuations, Brazil stands out as one of the more attractive emerging-market plays in 2025.
FX Tailwinds: The Dollar’s Weakness Is Brazil’s Strength
The real driver behind Brazilian equities this year hasn’t been sweeping domestic reform or productivity gains — it’s been foreign exchange flows.
- After the Brazilian real (BRL) collapsed more than 20% in 2024, it has since appreciated double digits in 2025.
- This rebound coincided with a period of U.S. dollar weakness, driven by protectionist trade policies, heavy fiscal spending, and expectations of Federal Reserve rate cuts.
- A stronger BRL means foreign capital flows into Brazil have more impact, lifting local equities and amplifying returns for dollar-based investors in EWZ.
This is the classic case of “macro falling into Brazil’s lap.” Even without major domestic reforms, the FX tailwind itself is enough to shift sentiment meaningfully.
Selic Rate Stabilization: The End of a Brutal Cycle
Brazil’s benchmark Selic rate sits at a daunting 15%. But investors increasingly believe this cycle is at or near its peak.
- Inflation, while still above target at ~5%, is stabilizing.
- Real rates (Selic minus inflation) are among the highest in the world, near 9–10%.
- That level of return remains extremely attractive to foreign investors, keeping capital flowing into Brazilian fixed income and, by extension, equities.
The key point: even if rates don’t fall immediately, the perception that the worst is behind us creates a constructive backdrop for risk assets.
Valuation Discounts: Still Cheap Relative to Peers
Brazilian equities continue to trade at steep discounts:
- EWZ trades around 9–10x earnings, versus 15x for broader emerging markets (EEM) and over 23x for the S&P 500 (SPY).
- Even after this year’s rally, multiples remain below pre-COVID averages and far under 2022 crisis levels.
- Dividend yield for EWZ sits above 5%, providing income support for investors wary of volatility.
This valuation gap leaves room for mean reversion as foreign capital continues rotating out of developed markets into cheaper emerging markets.
Global Rotation: From Developed to Emerging
The bigger story here is the global portfolio rotation.
- U.S. and European equities face headwinds from slowing growth, high valuations, and trade wars.
- Investors are reallocating to emerging markets, with Latin America — and Brazil in particular — benefiting most thanks to high real rates, currency strength, and relative insulation from U.S.–China tensions.
- Brazil, with its mix of commodities, banks, and consumer-facing companies, sits right in the flow of this reallocation.
Even without domestic breakthroughs, Brazil is positioned to absorb global capital simply by being one of the most attractive relative-value plays.
The EWZ Advantage
For global investors, EWZ remains the cleanest way to capture Brazil’s equity market.
- Highly liquid, with exposure to blue-chip Brazilian firms.
- Yield north of 5%, significantly higher than most emerging-market ETFs.
- Concentrated, yes — Petrobras, Vale, Itaú Unibanco, and Nu Holdings account for much of the fund — but these are also the very companies positioned to benefit most from FX flows, strong balance sheets, and global capital rotation.
Risks to Watch
No thesis is risk-free. Brazil still faces:
- Fiscal strain, with deficits financed more through taxes than spending cuts.
- Political uncertainty heading into 2026 elections.
- China dependency, especially for commodities like iron ore and oil.
- Global rate risk, should U.S. long yields spike, triggering outflows.
That said, these risks are well-known and arguably priced in — whereas the upside from FX stability and global rotation may not be fully reflected.
Bottom Line
Brazilian equities aren’t rallying because everything domestically is fixed — they’re rallying because the macro setup favors them.
- The dollar is weakening, providing a direct FX tailwind.
- Selic rates are at peak levels, ensuring attractive real yields and sustaining capital inflows.
- Valuations remain deeply discounted compared to peers.
- Global investors are rotating into emerging markets, and Brazil is one of the prime beneficiaries.
For me, this is enough to take a constructive stance: EWZ looks like a smart way to capture the global shift into emerging markets.
DISCLAIMER: This analysis of the aforementioned stock security is in no way to be construed, understood, or seen as formal, professional, or any other form of investment advice. We are simply expressing our opinions regarding a publicly traded entity.
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