No analyst questions that the Brazilian stock market is cheap. However, for these depressed valuations to translate into capital inflows and a rally, a positive narrative about the economy is needed.
The problem is that none of the presidential candidates want to commit to what needs to be done: fiscal adjustment and measures to improve growth and address low productivity. Nor do they make clear what they intend to do with the economy.
According to Franklin Templeton , the situation increases uncertainty, making it difficult to develop strategies due to a lack of information indicating which path the country will take.
"The valuation of our stock market today reflects a continuation of this scenario," said Frederico Sampaio, portfolio manager at Franklin Templeton Brazil, in a meeting with journalists on the morning of Thursday, June 25. "You build scenarios, but you don't really know the probability of each thing."
The situation is so detrimental that the Brazilian stock market is cheaper than Argentina 's, the second cheapest among Latin American markets. According to Sampaio, the stock market of our neighbors is trading at 9 times earnings, above the 8 times of the Ibovespa, due to a positive narrative thanks to the reforms promoted by the government of Javier Mili .
The country's lack of direction is affecting its ability to generate a more robust and sustained flow of resources from abroad. According to a survey by the consulting firm Elos Ayta, foreign investors withdrew R$ 14.9 billion from B3 in May 2026.
This is the largest monthly outflow of resources since January 2022 and surpasses the previous record of R$ 13.21 billion, registered in August 2023, although the accumulated flow in 2026 remains positive, ending the period from January to May at R$ 43.8 billion.
“In the last month and a half, almost half of what came in has left, which shows how much we still depend on external sentiment,” said Sampaio. “Foreign investors are asking what the trigger is for the economy to accelerate. Until that answer appears, some of the capital will continue to seek other opportunities around the world.”
With R$51 billion in assets under management in Brazil, mostly in fixed income, Franklin Templeton has prioritized companies with predictable cash flow generation and a strong capacity for dividend distribution.
Regulated sectors and those linked to infrastructure are among the favorites, such as electricity, sanitation, and highway concessions. The idea is to favor companies capable of delivering returns to shareholders even if stock appreciation takes time to materialize. "Today there are companies paying very high real returns," said Sampaio.
An improvement doesn't depend on much. Given the low level of expectations, clear signs of commitment to economic stability and fiscal responsibility are enough. "When expectations are so low, any positive surprise can have a very strong impact on the markets," said Sampaio.
While awaiting these signals, investors are beginning to position themselves abroad. According to Marc Forster, this is the first high-interest rate cycle in which Brazilians have shown such strong interest in international investments.
In previous cycles of monetary tightening, Forster said, the prevailing argument was that high domestic interest rates reduced the need for international diversification. Local risks and global opportunities have somewhat changed that view.
"In all other interest rate hike cycles, the 'why go abroad?' discourse prevailed. This cycle was practically imperceptible from that point of view," he said.
Currently, the main interest is in equities, and not only in the United States . According to Daniel Popovich, portfolio manager at Franklin Templeton Investment Solutions, the AI thesis has also been driving global flows towards Asia, which has become a hub for technology and essential products to support technological development.
"When we started looking for markets abroad, it was only the United States. Today there is a search for regional diversification," he said. "You have the emergence of Asia with the power of semiconductors increasingly demanding investor interest."
In addition to variable income investments, Popovich pointed to a significant increase in demand for hedge funds and alternative strategies, whose performance contrasts with the results of Brazilian multi-market funds. "Hedge funds abroad are booming again. There is renewed interest," he stated.
