Alex Nae, M.Sc.
Tae Yoon Kim, CFA, FRM
- Over the past 12 months[note1], FTSE Brazil has outperformed FTSE All-World and FTSE Emerging by 36.2% and 36.4% respectively, supported by strong fundamentals, attractive valuations and a resilient domestic backdrop.
- Despite this Brazil trades at a discount to All-World and other Emerging market peers and has similar return on equity (ROE).
- Brazil’s net oil exporter status offers a degree of resilience in the face of supply shocks, cushioning the domestic economy and equity market.
Introduction
Emerging markets and broader backdrop
We have been highlighting structural improvements across emerging markets as a theme – stronger external balances, more credible monetary frameworks, and improving earnings quality, several of which have now been stress-tested by the Middle East conflict.
In February we wrote [note2] that 2025 was largely a risk-on environment, in which EM equities outperformed developed markets, supported by a weaker dollar, improved domestic policy frameworks and external resilience, alongside cyclical tailwinds including attractive valuations and stronger earnings growth. However, the Middle East conflict has challenged Emerging markets which in broad terms have underperformed since the start of the conflict.
A stronger dollar and rising yields led to weaker EM currencies through March 2026.
Chart 1 - FX moves onset of conflict – Safe Haven characteristics in the USD
Another vulnerability for many EMs is their dependence on oil imports, as very few of the largest emerging markets are net exporters. That said, an oil supply shock tends to hit EMs unevenly based on their energy exposure.. [note3]
Brazil is one of those countries that has initially benefited from this supply shock. While it imports 14% of its refined products consumption, it is a net exporter of crude oil. Markets took note of this, as the Brazilian real declined 1.8% against the US dollar during the initial shock – a relatively modest move compared with the broader EM FX sell-off shown in Chart 1.
Chart 2 – Oil import dependency in EMs
While domestic oil production, so far, has helped cushion the initial impact that an oil supply shock has on the country’s currency and equities market.
Brazil’s deep dive
We published a detailed note in 2025, in which we identified Brazil as an overlooked value opportunity: [note4]
- A strong and growing economy, supported by well-developed domestic industries and growing financials and services.
- Major commodity exporter status, with ~5.4% of GDP derived from commodity exports, cushioning the economy against global supply shocks.
- Low correlation to US and EM benchmarks, alongside a trade surplus with China, placing Brazil in a select group of countries globally.
Since then, Brazil returned 47.2% in 2025 and a further 33% [note5] year-to-date (2026), outperforming FTSE Emerging by 20.7% and FTSE All-World by 24.1% - Chart 3 – Cumulative returns YTD.
Brazil Performance Comparison (Rebased to 100)
Strong performance also reflects healthy fundamentals
In valuation terms, Brazil screens attractively relative to global equities. As shown in Chart 4, Brazil’s 12-month forward P/E is 9.5, with an ROE of 18.9. By comparison, FTSE Emerging sits at 12.6x its forward earnings, despite a lower ROE of 12.8.
Chart 4: 12 FWD PE and ROE 1
Part of this discount reflects index composition. Financials account for around 30% of the Brazilian index, followed by energy at 21.4%.
These cyclical industries typically trade at lower multiples, which helps explain the valuation gap. By contrast, FTSE Emerging has around 30% of its weight in technology, where companies are more exposed to the AI build-out and other high-growth global IT themes, resulting in a different valuation dynamic.
Still, the valuation gap is not just about industry mix.
The Selic rate remains high at 14.7%. Although it was cut from 15% in March 2026, the central bank has stressed that policy still needs to remain meaningfully restrictive to bring inflation, currently 3.8%, back towards target. Recent guidance has also highlighted a more challenging external backdrop, with the Middle East conflict adding to risks around inflation and global financial conditions.[note6]
October’s election adds another layer of uncertainty. A Lula victory would imply greater policy continuity, while a shift to the right could be seen as more supportive of tighter fiscal policy and lower risk premia, depending on the credibility of any reform agenda.
Brazil continues to stand out for strong fundamentals, a differentiated industry mix, fiscal reform efforts, and monetary discipline, while also benefiting from its position as a net oil exporter. These factors help explain its strong start to 2026, despite heightened global uncertainty and pivotal elections later this year.
Sources
[1] 12 months 31st of March 2025 to 31st of March 2026. Close of trade periods. | Back to Note 1
[2] See Emerged: The structural re rating of Emerging Markets (February 2026), which links EM outperformance in 2025 to the factors discussed here. It also emphasizes that EM risks are now more idiosyncratic and country-specific than systemic.) | Back to Note 2
[3] Being an oil exporting economy, Brazil differs from most EMs. It can’t fill the gap caused by the ME conflict, in global terms, but its broader Energy industry has done well YTD (up ~50%) and can act as a seatbelt during oil shocks. For example, Petrobras has an expected output of ~4mb/d in 2026. | Back to Note 3
[4] In the paper we also outlined Brazil's well-developed export market, alongside the dual role of commodity exports in supporting both external trade and domestic consumption. On trade, Brazil runs a deficit with the US, meaning tariff exposure is likely limited, though political pressure on Lula remains a risk given the rivalry with Trump. | Back to Note 4
[5] Up to 22nd of April. | Back to Note 5
[6] The IMF notes that Brazil’s economy has held up relatively well, but momentum is beginning to soften. At the same time, inflation picked up again in 2024, driven by strong domestic demand, higher food prices and currency depreciation, leaving policymakers cautious on the macro outlook. | Back to Note 6
Read more about
Disclaimer
© [2026] London Stock Exchange Group plc and its applicable group undertakings (“LSEG”). LSEG includes (1) FTSE International Limited (“FTSE”), (2) Frank Russell Company (“Russell”), (3) FTSE Global Debt Capital Markets Inc. “FTSE Canada”, (4) FTSE Fixed Income LLC (“FTSE FI”), (5) FTSE (Beijing) Consulting Limited (“WOFE”), FTSE EU SAS ("FTSE EU"). All rights reserved.
FTSE Russell® is a trading name of FTSE, Russell, FTSE Canada, FTSE FI, WOFE, FTSE EU and other LSEG entities providing LSEG Benchmark and Index services. “FTSE®”, “Russell®”, “FTSE Russell®”, “FTSE4Good®”, “ICB®”, “Refinitiv”, “WMR™” “FR™” and all other trademarks and service marks used herein (whether registered or unregistered) are trademarks and/or service marks owned or licensed by the applicable member of LSEG or their respective licensors.
FTSE International Limited is authorised as a Benchmark Administrator and regulated in the United Kingdom (UK) by the Financial Conduct Authority ("FCA") according to the UK Benchmark Regulation, FCA Reference Number 796803. FTSE EU SAS is authorised as Benchmark Administrator and regulated in the European Union (EU) by the Autorité des Marches Financiers (“AMF”) according to the EU Benchmark Regulation.
All information is provided for information purposes only. All information and data contained in this publication is obtained by LSEG, from sources believed by it to be accurate and reliable. Because of the possibility of human and mechanical inaccuracy as well as other factors, however, such information and data is provided "as is" without warranty of any kind. No member of LSEG nor their respective directors, officers, employees, partners or licensors make any claim, prediction, warranty or representation whatsoever, expressly or impliedly, either as to the accuracy, timeliness, completeness, merchantability of any information or LSEG Products, or of results to be obtained from the use of LSEG products, including but not limited to indices, rates, data and analytics, or the fitness or suitability of the LSEG products for any particular purpose to which they might be put. The user of the information assumes the entire risk of any use it may make or permit to be made of the information.
No responsibility or liability can be accepted by any member of LSEG nor their respective directors, officers, employees, partners or licensors for (a) any loss or damage in whole or in part caused by, resulting from, or relating to any inaccuracy (negligent or otherwise) or other circumstance involved in procuring, collecting, compiling, interpreting, analysing, editing, transcribing, transmitting, communicating or delivering any such information or data or from use of this document or links to this document or (b) any direct, indirect, special, consequential or incidental damages whatsoever, even if any member of LSEG is advised in advance of the possibility of such damages, resulting from the use of, or inability to use, such information.
No member of LSEG nor their respective directors, officers, employees, partners or licensors provide investment advice and nothing in this document should be taken as constituting financial or investment advice. No member of LSEG nor their respective directors, officers, employees, partners or licensors make any representation regarding the advisability of investing in any asset or whether such investment creates any legal or compliance risks for the investor. A decision to invest in any such asset should not be made in reliance on any information herein. Indices and rates cannot be invested in directly. Inclusion of an asset in an index or rate is not a recommendation to buy, sell or hold that asset nor confirmation that any particular investor may lawfully buy, sell or hold the asset or an index or rate containing the asset. The general information contained in this publication should not be acted upon without obtaining specific legal, tax, and investment advice from a licensed professional.
Past performance is no guarantee of future results. Charts and graphs are provided for illustrative purposes only. Index and/or rate returns shown may not represent the results of the actual trading of investable assets. Certain returns shown may reflect back-tested performance. All performance presented prior to the index or rate inception date is back-tested performance. Back-tested performance is not actual performance, but is hypothetical. The back-test calculations are based on the same methodology that was in effect when the index or rate was officially launched. However, back-tested data may reflect the application of the index or rate methodology with the benefit of hindsight, and the historic calculations of an index or rate may change from month to month based on revisions to the underlying economic data used in the calculation of the index or rate.
This document may contain forward-looking assessments. These are based upon a number of assumptions concerning future conditions that ultimately may prove to be inaccurate. Such forward-looking assessments are subject to risks and uncertainties and may be affected by various factors that may cause actual results to differ materially. No member of LSEG nor their licensors assume any duty to and do not undertake to update forward-looking assessments.
No part of this information may be reproduced, stored in a retrieval system or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without prior written permission of the applicable member of LSEG. Use and distribution of LSEG data requires a licence from LSEG and/or its licensors.
