Benefiting from the global resource demand cycle and the emergence of investment value, the Brazilian stock market (Bovespa Index) posted its best performance in nearly a decade last year, with an annual gain of up to 34%. In January of this year alone, it continued to rise by 13.8%. Related Brazilian and Latin American equity funds have also shared in these gains.
Brazil’s Economy and Inflation
Brazil’s economy last year showed a “strong start, weaker finish” pattern. In the first quarter, GDP growth was exceptionally strong, with a quarterly increase of 1.4% and an annual growth rate as high as 5.7%, making it the fastest-growing economy among G20 countries at that time. However, in the second half of the year, rising inflationary pressures constrained growth momentum, and economic growth clearly slowed. In the third quarter, the annual GDP growth rate dropped to 1.8%, marking the lowest level in nearly three years. The full-year economic growth rate is estimated to be around 2.2% to 2.8%. Although this is a slowdown compared to the 3.4% growth rate from the previous year, it still exceeded market expectations.
Brazil has long been troubled by inflation issues. Affected by rising food prices and excessive fiscal spending, Brazil’s Consumer Price Index (IPCA) surged above 5.5% last year, exceeding the central bank’s target level of 3%. However, the Central Bank of Brazil (BCB) responded very swiftly to inflation. Starting from September the year before last, it raised interest rates multiple times consecutively. In June last year, it further increased the benchmark interest rate (Selic) to 15%, reaching the highest level in nearly 20 years. The measures to curb strong inflationary pressure have gradually taken effect, and it is expected that high interest rates will be maintained this year to effectively combat inflation.
Abundant Natural Resource
Brazil is an export-oriented country, primarily exporting raw materials and agricultural products. Its economy and stock market are highly susceptible to fluctuations in international commodity prices. Currently, the two major pillars of the Brazilian stock market are Vale and Petrobras. Vale is one of the top ten mining companies globally and the world’s largest supplier of iron ore as well as the largest supplier of nickel. Benefiting from increased demand for raw materials, Vale’s total iron ore production last year was approximately 335 million tons, exceeding market expectations. Additionally, its involvement in copper, nickel, and other metals used in the energy transition has been well received by the market, and effective cost reductions have further boosted its performance. Vale’s stock has significantly outperformed Rio Tinto and BHP. Moreover, Vale’s dividend yield reached nearly 7% last year and is expected to hit 8.5% this year, with a price-to-earnings ratio of less than 13, attracting many value investors seeking cash flow. Vale’s stock price surged 47% over the past year. In February, Bank of America still named it a top pick for 2026, raising its price target from $15 to $17. Driven by strong buying momentum, Vale’s stock has risen more than 20% in just one month this year, reaching a new high in nearly a year!
Petrobras is Brazil’s largest state-owned oil company. Last year, it set a single-day production record of 3.77 million barrels, a 12.3% increase compared to the previous year. However, due to relatively weak oil prices, Petrobras’ stock price still fell nearly 20% over the entire year. Known for its high dividend yield, Petrobras maintained a strong dividend yield between 7% and 12% last year, offsetting the relative lag in its stock price. At the end of last year, the company announced a five-year plan to reduce capital expenditures and optimize asset allocation. Revenue is expected to grow by 7.8% this year, with first-quarter profits projected to increase by 6.1%. Currently, the price-to-earnings ratio is only 6 times, and the stock price is at a historical low, attracting significant value investors to buy back shares. Petrobras has shown strong stock price momentum since the beginning of this year, with January seeing a surge of over 25%, reaching a nearly one-year high and driving the Brazilian stock market to new highs.
Brazil has a renewable energy power share of 88%, making its low-carbon industrial products highly competitive in the global ESG investment wave. The Brazilian government plans to invest 225 billion reais from 2024 to 2026 to expand the power grid and is launching its first large-scale Battery Energy Storage System (BESS) tender, expected to attract $1.8 billion in investment. Meanwhile, demand for liquid fuels is steadily growing, and the electric vehicle market is rapidly expanding under policy support, with sales surpassing 100,000 units last year and expected to hit new highs this year.
Brazil’s Politics
On the political front, the market initially worried that Brazilian President Lula would implement radical populist spending. However, the government subsequently passed a new fiscal framework linking spending growth to revenue. Although the budget deficit remains large, the elimination of “extreme risks” has stabilized market sentiment. Despite facing a hefty 50% retaliatory tariff from the Trump administration, Lula’s approval ratings have risen rather than fallen. As the 2026 election approaches, the nearly 80-year-old Lula is seeking re-election for a fourth term. The market is beginning to anticipate possible policy shifts or new stimulus measures, officially kicking off Brazil’s election season.
Equity Brazil and Latin America Funds Performance Analysis
According to Lipper statistics, there are currently 5 Brazilian and 9 emerging Latin American market equity funds registered for sale in Taiwan. As of January 31, the average year-to-date returns for Equity Brazil and Equity Emerging Market Latin American reached 4.6% and 6.3%, respectively. Over the past three months, the average returns were as high as 15.7% and 18.7%, and over the past six months, they soared to 33.9% and 36.5%, respectively. The average returns over the past year were even higher, at 40.3% and 46.1%. The Brazilian stock market’s long-term price-to-earnings ratio remains below 8 times. In recent years, Latin America has actively undertaken fiscal restructuring, resulting in relatively sound fiscal discipline. Additionally, with China’s real estate deleveraging nearing its end and policies shifting back toward stimulus, this also helps improve Latin America’s export momentum. As AI-related investments expand, capital is rapidly flowing into undervalued markets such as Brazil and Mexico. If the U.S. dollar continues to weaken, it will simultaneously support Latin American currencies and consumer purchasing power, benefiting major commodity-exporting countries like Brazil, Chile, and Peru.
Figure 1: Performance of Equity Brazil and Emerging Markets Latin America
Source：LSEG Lipper, as of 2026/1/31, in TWD
