Foreign investors with Argentina FOMO pile into Brazil stocks

Afraid of missing out on an Argentina-like rally, investors are piling into Brazil on bets that a business-friendly candidate will win next year’s election.

“It’s one thing to be a manager of an international fund that missed an Argentina rally,” said Ronaldo Patah, investment strategist for Brazil at UBS Global Wealth Management. “But not Brazil. Brazil is huge, and an emerging-markets fund manager who misses a Brazil rally is out.”

UBS Wealth already upgraded the nation’s equities market in June citing discounted valuations and the Central Bank’s expected easing cycle. Since then, the Brazilian stock index, Ibovespa, has rallied five percent, pushing year-to-date gains to 19 percent and reaching all-time highs.

Foreigners in particular spent 1.2 billion reais (US$226 million) buying stocks in August while locals pulled out that same amount. That’s the sixth month this year so far that they’ve put money in Brazil on a net basis, compared to just three months of inflows in 2024. 

Though that trend has flipped in recent days, Patah said the fact that the Ibovespa has been hitting highs usually triggers some profit-taking. Expectations of monetary easing, both locally and in the US, are also helping boost emerging-market assets. 

There may be more than a year to go before Brazilians head to the polls, but investors don’t want to miss out on an opportunity that could pan out like Argentina. 

As early as 18 months before the election, traders were betting that Argentines would ditch left-wing Peronist candidates in favour of someone more market friendly. That was even before now-President Javier Milei was a serious contender in the race. The nation’s Merval Index saw a 142 percent surge in 2022 and the rally intensified during election year, gaining a whopping 360 percent in 2023. 

 So FOMO-motivated traders are watching closely as Brazil enters its own campaign cycle. Recent polls showing President Luiz Inácio Lula da Silva’s declining popularity have served as a boost for assets, while hopes that São Paulo Governor Tarcisio de Freitas could enter the race have served as a positive trigger for markets.

“People are looking for the next Argentina. If both politics and monetary policy move in the right direction, we could see a once-in-a-lifetime rally in Brazil,” said Malcolm Dorson, senior portfolio manager at Global X Management. “But those are both still big ifs.”

While Lula has been revitalised by the threat of tariffs from US President Donald Trump, a recent AtlasIntel poll published on August 28 showed his approval falling to 48 percent, down two points from July. The poll also showed Lula trailing Freitas 48.4 percent to 46.6 percent in a hypothetical run-off vote.

Meanwhile, ex-president Jair Bolsonaro – the leader of Brazil’s right-wing movement – was convicted by the Supreme Court on Thursday of attempting a coup in 2022. His political clan has been thrown into chaos and he has no clear successor. Freitas has so far insisted he is not running for office. 

“It’s impossible to say that anything has already been defined about the elections because everyone knows it will be a very close election and it’s still a long way off,” Patah said. 

But the recent swings in Lula’s popularity have “created some of this anxiety in the market.”