Brazil The Three ELs Elections El Niño Elevated Interest Rates

HSBC's equity strategy report on Brazil highlights that the recent market sell-off is driven by election uncertainty, climate-driven inflation risks (El Niño), and elevated interest rates. Despite this bearish sentiment, the report argues that much of the negative impact is already priced in, offering potential stability for dividend-growing and lower-beta stocks.

Key Takeaways

• 1.Brazil equity markets face headwinds from the 'Three ELs': Elections, El Niño, and Elevated interest rates.
• 2.Despite negative sentiment, high beta stocks show more limited downside than feared due to debt restructuring and attractive dividend yields in SOEs.
• 3.Foreign investor outflows in Brazil reached the highest monthly drawdown since December 2025.

Table of Contents

• LatAm Equity Strategy
• No country for bears
• Disclosures & Disclaimer
• Even higher beta stocks appear to have more limited downside
• SOEs which tend to be more volatile on election uncertainty offer healthy dividends and trade at undemanding valuations
• Foreign flows starting to reverse; locals underallocated
• Expectations on domestic risk factors are at peak levels ytd
• External factors now adding to pressure
• Disclosure appendix
• Additional disclosures
• Production & distribution disclosures
• Disclaimer

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