Although at a slow but steady pace, Brazil is growing. Inflation is approaching the upper limit of the target without exploding. The real continues to appreciate against the dollar. And the Selic rate, while not declining as much as desired, is also not hindering the recently initiated monetary easing cycle. Keeping inflation on track, even under pressure, requires serenity and caution in conducting monetary policy – according to the playbook followed to the letter by the Central Bank and supported by the market.
Along these lines, the economic scenario is far from being the worst and attracts investors. In practice, however, the movement observed especially in the first quarter, with a heavy inflow of dollars into the Brazilian stock market, says more about the international context than about Brazil itself.
The situation could change as elections approach or due to events that increase asset volatility, as occurred on Wednesday, May 13th, following the leak of an audio recording in which Flávio Bolsonaro asked Daniel Vorcaro, owner of Master, for money to finance a film dedicated to former president Jair Bolsonaro.
The event shook the market, which is betting on Flávio as an option to change economic policy should he win the presidential election. On Thursday, May 14th, prices underwent a correction. But the episode could alter the course of the race and further favor President Lula, who, according to the market, is "falling short" on fiscal policy and exaggerating the benefits to the population, which could yield votes and a fourth term.
Before the "audio" event that brought political risk to the forefront, in the year up to mid-April, R$ 69 billion from foreign investors invested in B3 stocks – more than double the R$ 25.5 billion for the entire year of 2025. In less than a month, however, R$ 18.3 billion left the market. The balance for the year up to May 12th fell to R$ 50.7 billion.
“Just as the inflow of foreign capital had little to do with Brazil, the outflow of resources so far also has little to do with it,” observes Alexandre Mathias, partner at Meridian Investments. Speaking to NeoFeed , the strategist, who previously worked at Itaú Unibanco, Bradesco Asset, Petros, and Monte Bravo, does not see the movement of foreign investors as an exaggerated gamble.
“In fact, it was a good bet that paid off. The money entered the country with the exchange rate at R$ 5.40 or R$ 5.50 and the Ibovespa 10% lower. The investor gained 15% or 20%, which explains the profit-taking,” he assesses.
Mathias observes that, over the last nine months, the inflow of foreign capital into Brazil has consolidated primarily as a reflection of global dynamics. The backdrop was the transition in the allocation regime, with less concentration in US assets, a weakening dollar, and a search for liquid and discounted markets outside the US axis.
“This process was triggered by Trump’s erratic behavior since the beginning of the trade war, but also driven by the perception that interest rates in the US would fall; and they did. Added to this are uncertainties about the valuation of companies linked to artificial intelligence, a topic that remains sub judice.”
According to the economist, Brazil has emerged as one of the main beneficiaries of this realignment of positions in emerging markets, Europe, commodities, and value assets, and not without reason. "The country naturally attracted flows because it combines three rare characteristics: a liquid stock market, a dollar-denominated stock exchange, and high exposure to commodities and banks."
"Quality" and "defect" favor Brazil.
The magnitude of this dynamic is evidenced, says Mathias, by the disproportion between the markets. While fixed and variable income assets in the US total around US$120 trillion, the total market value of stocks on the B3 (Brazilian stock exchange) is around US$1 trillion. Since the Brazilian stock exchange represents less than 1% of the US capital market, small changes in flows cause severe price shifts in local markets.
“And the outflow of dollars from the domestic market stems from a partial reversal in the perception of the dollar, which led foreign investors to realize accumulated profits. With US inflation more persistent due to the war, interest rate cuts in the US were postponed and rates started to rise again,” Mathias points out.
In a market consensually positioned in the real and the stock market, says Mathias, any marginal change in the global scenario triggers the unwinding of positions. "Finally, the stabilization of the global dollar and the defensive repositioning in American assets put pressure on emerging market currencies and assets," he adds.
Brazil also stands out for a "quality" and a "defect" that are nothing new: being a net exporter of oil strengthens the trade balance and increases the supply of dollars; having one of the highest base interest rates in the world fosters "carry trade," which also helps to strengthen the real.
Apart from fiscal policy, which will require a complex and very tough adjustment in 2027, the Brazilian economy is not a cause for concern, especially if the reacceleration of activity at the beginning of the year is confirmed, after weakening in the last quarter of 2025, when GDP grew by only 0.1%.
Projections point to an increase of at least 1% from January to March. And, on Monday and Tuesday, May 18th and 19th, two March indicators will serve as a "tie-breaker": the IBC-Br, from the Central Bank, and the GDP Monitor, from Ibre FGV, respectively.
In parallel to the still unannounced outcome of the conflict in the Middle East, the market is monitoring the government's mobilization, which is accelerating the announcement of populist measures, and the reshuffling of the economic team.
Simone Tebet and Fernando Haddad were replaced, respectively, in the Planning and Finance ministries by trusted figures: Bruno Moretti, former Special Secretary for Government Analysis of the Civil House, and Dario Durigan, former Executive Secretary of the Finance Ministry, endorsed by Haddad. Gabriel Galípolo became the remaining member of the economic team. All else being equal, he will stay in his post until December 2028.
