Brazil Equity Strategy Sectors at a Glance

Research evidence excerpt

Brazil Equity Strategy Sectors at a Glance

Banco J.P. Morgan S.A. Global Markets Strategy

Cinthya M Mizuguchi AC 07 June 2026 J P M O R G A N

(55-11) 4950-6560

cinthya.mizuguchi@jpmorgan.com

Sectors at a Glance

Financials (Banks) (+)

The sector appears underowned by local investors, which is surprising given its size in

the index. We see an attractive risk/reward profile: several tailwinds are keeping

earnings resilient despite a choppy macro backdrop. Earnings expectations into year-end

remain strong at 17%, the short interest ratio is attractive, and any rebound in the

broader market should primarily benefit this sector. Within that, we prefer high-quality

private banks, even with valuations looking demanding and NPL concerns rising over

the past few months. Part of the NPL increase appears to be accounting noise, and

private banks are typically better positioned thanks to a stronger mix and better

execution. Renegotiation programs like Desenrola could improve recoveries on already

provisioned portfolios, even if they don’t solve structural leverage. At the same time,

inflation expectations and a still-high Selic keep conditions tight, pressuring household

and corporate debt service and keeping asset quality and balance-sheet health in focus.

The debate now is how far credit costs can rise versus how long strong interest income

can last, with fee income and efficiency helping to smooth the path across both

scenarios. On the positive side, a firmer economy supports credit demand, while high

real rates keep net interest margins and interest income strong, providing a cushion as

credit losses and provisioning trend back toward more normal levels. We like Itaú (OW)

as the best risk-adjusted compounder (balance-sheet strength, best-in-class efficiency,