By Brazil Stock Guide – JPMorgan Chase & Co. (JPM) reiterated its overweight call on Brazilian assets as the Federal Reserve prepares to cut interest rates on Sept. 17, according to a report published by InfoMoney. Unlike previous easing cycles that unfolded during global crises, the bank sees the current environment as favorable for emerging-market equities, particularly Brazil.
Analysts reviewed Fed easing episodes since 1998, noting that most occurred in times of financial turmoil — such as the LTCM collapse, Russia’s default, the Sept. 11 attacks, the dot-com bust, the 2008 global financial crisis and the Covid-19 pandemic. These shocks typically triggered a flight to safety, strengthening the US dollar and weakening Latin American currencies, while fueling local inflation and rate hikes.
“This time is different,” the analysts wrote, pointing to a so-called “soft landing” in the US economy combined with a weaker dollar. The bank said these conditions support further rate cuts across Latin America and bolster the case for equity gains.
Brazil Outlook
JPMorgan expects Brazil’s central bank to begin its own easing cycle in December, a move that could provide an additional boost to the Ibovespa.
The firm maintained underweight ratings on commodities and overweight recommendations on domestically driven sectors such as real estate, financials, discretionary consumption and utilities. Despite slower growth, falling inflation is supporting household income and demand, according to the note.
Portfolio Shifts
JPMorgan removed Banco do Brasil SA (BBAS3) from its portfolio, citing deteriorating asset quality in the agribusiness sector that is weighing on profitability and dividends. The bank added Nu Holdings Ltd. (NU), traded in Brazil via BDR (ROXO34), expecting its Mexican unit to reach breakeven this year. Rail operator Rumo SA (RAIL3) was also excluded due to weak operational prospects and lack of near-term catalysts.
Historical Performance
The study showed that emerging markets have outperformed developed peers by 12.4% around the first Fed rate cut, with Brazil standing out with an average gain of 16.9%. While full easing cycles have historically delivered negative returns due to crisis backdrops, JPMorgan believes the current scenario will resemble the latest exception, which produced broad-based gains across risk assets.
Leave a Reply