By Brazil Stock Guide – Brazil’s retail sector remains firmly on the radar of global investors, but capital allocation has become increasingly selective as domestic economic momentum fades and political uncertainty builds ahead of the next electoral cycle. A BTG Pactual report shows that international funds continue to engage with the sector, yet concentrate exposure in a limited group of highly liquid stocks, even as expectations for interest-rate cuts remain pushed out to 2026.
Meetings held by the bank with investors in Europe reinforced a pattern that has defined 2025. Foreign positioning favors companies such as Mercado Livre (Nasdaq: MELI), Raia Drogasil (B3: RADL3), Lojas Renner (B3: LREN3) and, to a lesser extent, Assaí (B3: ASAI3). Liquidity has become the decisive filter, especially after recent share price gains, while companies more exposed to disposable income face persistent skepticism over near-term earnings visibility.
Liquidity as the gatekeeper
Raia Drogasil stands out as one of the most consensual long positions among emerging-market investors. BTG highlights a sharp improvement in sentiment since March, driven by stronger-than-expected second- and third-quarter results, continued market-share gains and the growing relevance of GLP-1 medications as a long-term prescription growth driver. Even trading at roughly 25 times projected 2026 earnings, the company is viewed as a carry asset, combining cyclical resilience with structural optionality.
In apparel, the tone is more restrained. Lojas Renner continues to be seen as a balanced mix of growth and dividend yield, supported by brand strength and superior store productivity. Still, moderate sector growth limits upside revisions in the near term. Valued at around nine times projected 2026 earnings, the stock offers potential through buybacks and shareholder distributions, but BTG expects a gradual recovery rather than a sharp rebound. C&A faces similar hesitation, compounded by a recent block sale by Cofra and signs of weaker fourth-quarter trends.
Strong structure, weak cycle
Among large-cap retailers, Assaí remains the most contested investment case. Investors broadly agree that its long-term competitive positioning, scale and cost leadership remain intact. Yet short-term pressures dominate the narrative, reflecting softer consumption among lower-income households and a slowdown in price dynamics. Recent policy discussions, including revisions to Brazil’s cash-transfer programs and a proposal to exempt monthly incomes up to R$5,000 (about $1,030) from income tax, may offer incremental support, but investors see these measures as insufficient to offset the immediate cyclical drag.
In e-commerce, Mercado Livre continues to anchor investor discussions as the sector’s benchmark name. However, BTG notes that competitive intensity in Brazil has increased materially. Amazon and Shopee have stepped up capital deployment, narrowing historical advantages in logistics and cost structure. As a result, the marginal cost of growth has risen, reshaping margin expectations and producing a more balanced risk-return profile, even for long-term holders.
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