Did you know? For investors seeking opportunities less correlated to US equity markets, it may be time to revisit Brazil.
As the US bull market continues, it is prudent for investors to consider opportunities that are less correlated. Latin America (LatAm) has historically offered one such opportunity. From 2001 to 2010, for example, supported by rising inflation and strong commodity prices, LatAm equities significantly outperformed global markets.
Chart 1: Performance of MSCI ACWI, MSCI North America and MSCI EM LatAm indices, in US dollar terms, Dec-2000 to Dec-2010
Within the region today, Brazil stands out as the most compelling opportunity. As the largest equity market in LatAm, its performance is likely to be driven by two key catalysts:
1. Monetary policy easing – Brazil currently has the highest real interest rate in the region (~10%). With policy rates at 15% and inflation running near 5%, we expect a meaningful rate-cutting cycle beginning in late 2025 and continuing through 2026.
Chart 2: Actual and projected Brazilian benchmark (Selic) interest rates
2. Potential for political change – Brazil faces a pivotal election in October 2026. Disapproval ratings for President Lula remain high as economic momentum slows. The leading opposition candidate, Tarcísio de Freitas, Governor of São Paulo, is regarded as pro-business and could help restore investor confidence. A political shift, coupled with monetary easing, could unlock significant upside for Brazilian equities.
Valuations further enhance the case for Brazilian equities, which have meaningfully de-rated relative both to history and other emerging markets.
Chart 3: 1-year forward P/E for Brazilian equities, 2016-2025, and current LatAm equity market valuation summary
The fund is investing in leading Brazilian companies at highly attractive valuations. With macro, political, and valuation catalysts aligning, Brazil offers a rare and compelling investment opportunity that investors should not overlook.
At Ox Capital, we are focused on quality companies with long term growth which are available at inexpensive valuations across emerging markets. Current valuations are providing lots of interesting opportunities. Let us know if you would like to understand specifically where we are finding the opportunities!
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