The Brazilian stock market saw a positive shift in July and August as foreign investors transitioned from selling to buying, injecting optimism into the financial markets. According to Morgan Stanley, these investors acquired R$ 3.6 billion ($648 million) in stocks in July and R$ 7.0 billion ($1.26 billion) in August, with R$ 4.3 billion ($774 million) bought in just one week. The potential for a soft U.S. economic landing and a predicted cut in interest rates by the U.S. Federal Reserve in September could attract more capital to Brazilian equities.
With Brazil now holding the top overweight position in global emerging markets portfolios managed by Morgan Stanley, investors are shifting funds from China and Mexico to Brazil due to attractive valuations. The market’s undervaluation, trading at 8.9 times future earnings compared to the 14-year average of 11.7 times, presents an appealing entry point. Despite capital outflows earlier in the year, the recent influx of foreign capital has helped offset losses.
However, institutional and retail investors have still withdrawn significant amounts this year, posing a risk of the first net retail outflow since last December.