LatAm Equity Strategy Brazil: The “Three ELs”: Elections, El Niño, Elevated interest rates

Research evidence excerpt

LatAm Equity Strategy Brazil: The “Three ELs”: Elections, El Niño, Elevated interest rates

29 June 2026

LatAm Equity Strategy EquityLatin AmericaStrategy

Brazil: The “Three ELs”: Elections, El Niño, Elevated

interest rates

◆ Doom and gloom sentiment dominating Brazil equities as EWZ Nicole Inui*, CFA

sells off, but further downside would likely require a new shock Head of Equity Strategy, Americas

Banco HSBC S.A.

nicole.inui@hsbc.com

◆ Three “ELs” drive the sell-off: Elevated rates, El Niño inflation +55 11 2802 3475

risk, and Election uncertainty – much already in the price Preethkar R*

Associate

Bangalore

◆ Strategy: Stick with lower beta, dividend and visible earnings

growers, but high beta looks less asymmetric than feared * Employed by a non-US affiliate of HSBC Securities (USA) Inc, and is

not registered/ qualified pursuant to FINRA regulations

We are seeing some doom and gloom sentiment around Brazil’s equity markets with

the EWZ down by 18% since peaking in mid-April. Interest rate cuts have been priced

out. GEM investor active OW positioning in Brazil is at a two-year low. Foreigners took

cUSD15bn in May (vs USD7.5bn in June until now) out of the Brazil equity market, the

largest monthly drawdown since December 2025. The recent sell-off, in our view,

stems from uncertainty surrounding the three “ELs”… Elections, El Nino and Elevated

interest rates. While some positive catalysts for Brazil may be delayed—rate cuts,

clearer election visibility—we think much of the negative noise is already at extreme

levels, making incremental downside from “more bad news” less likely.

On rates, the market has moved from expecting easing to pricing no cuts and even

hikes further out. On El Niño, climate models point to possibly the strongest on

record.