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Morgan Stanley Sees Brazil's Stock Market Surging If Politics And Rates Fall Into Line
(MENAFN- The Rio Times) Morgan Stanley is telling global investors that Brazil could become one of the world's standout stock markets by 2026. In a new report, the bank keeps its“overweight” stance on Brazilian equities and projects the Ibovespa at 200,000 points by the end of 2026.
From current levels, that implies about 27% upside in local currency and roughly 19% in dollars. The pitch is simple: company profits are expected to grow in dollars by 7% in 2026 and 19% in 2027, while the market still trades at around 10 times expected earnings.
In other words, Brazil is being sold as a relatively cheap market where earnings are likely to rise – a combination investors usually like when they worry that the big developed markets are already expensive.
The bank argues that the real game-changer would be a lower cost of capital. Brazil still lives with very high real interest rates, which keep local money parked in government bonds and away from stocks.
If the Central Bank can start cutting rates in the first quarter of 2026, as Morgan Stanley assumes, domestic investors could slowly shift out of fixed income and into equities, giving the Ibovespa an extra push.
Politics is the other key ingredient. The bank's optimistic scenario assumes that the October 2026 presidential election brings clearer, more disciplined economic management and less fiscal noise.
Brazil's Market Split Between Big Upside and Sharp Downside
In that best case, the Ibovespa could rise by as much as 42% in dollars, helped by both stronger profits and higher valuation multiples as confidence returns.
The negative scenario is starkly different. If public spending accelerates, interest rates stay high for longer and economic policy continues to generate fiscal doubts, investors could punish Brazil again.
In this darker path, earnings growth would fade, valuation multiples would shrink, and the Ibovespa could lose up to 44% in dollars from current levels.
For expats and foreign investors, the message is that Brazil has become a high-risk, high-potential bet on whether the country chooses more predictable, investment-friendly policies or doubles down on a more state-driven, fiscally loose approach.
From current levels, that implies about 27% upside in local currency and roughly 19% in dollars. The pitch is simple: company profits are expected to grow in dollars by 7% in 2026 and 19% in 2027, while the market still trades at around 10 times expected earnings.
In other words, Brazil is being sold as a relatively cheap market where earnings are likely to rise – a combination investors usually like when they worry that the big developed markets are already expensive.
The bank argues that the real game-changer would be a lower cost of capital. Brazil still lives with very high real interest rates, which keep local money parked in government bonds and away from stocks.
If the Central Bank can start cutting rates in the first quarter of 2026, as Morgan Stanley assumes, domestic investors could slowly shift out of fixed income and into equities, giving the Ibovespa an extra push.
Politics is the other key ingredient. The bank's optimistic scenario assumes that the October 2026 presidential election brings clearer, more disciplined economic management and less fiscal noise.
Brazil's Market Split Between Big Upside and Sharp Downside
In that best case, the Ibovespa could rise by as much as 42% in dollars, helped by both stronger profits and higher valuation multiples as confidence returns.
The negative scenario is starkly different. If public spending accelerates, interest rates stay high for longer and economic policy continues to generate fiscal doubts, investors could punish Brazil again.
In this darker path, earnings growth would fade, valuation multiples would shrink, and the Ibovespa could lose up to 44% in dollars from current levels.
For expats and foreign investors, the message is that Brazil has become a high-risk, high-potential bet on whether the country chooses more predictable, investment-friendly policies or doubles down on a more state-driven, fiscally loose approach.
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