Spring Break in Brazil: Feedback from The Road; OW Brazil

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Spring Break in Brazil: Feedback from The Road; OW Brazil

Idea

June 15, 2026 11:39 PM GMT

Morgan Stanley México, Casa de Bolsa, S.A. de C.V.+MLatin America Equity Strategy | Latin America Nikolaj Lippmann

Equity Strategist

Spring Break in Brazil: Feedback Nikolaj.Lippmann@morganstanley.comMorgan Stanley C.T.V.M. S.A.+ +1 212 761-2463

Julia M Leao Nogueira

Equity Strategistfrom The Road; OW Brazil Julia.Nogueira@morganstanley.com +55 11 3048-6046

At 8.2x PE, Brazilian equities trade close to our bear case Exhibit 1 : International investors have been

valuation, providing an asymmetry in terms of its risk reward. consistently pulling money out of the local

Fiscal challenges are real, but the market offers optionality for exchange in 2Q, after a strong 1Q for inflows

rebalancing towards a new cycle. We remain OW while favoring Foreigners daily net inflow to Brazil stock market (BRLbn)

4 Start of Iran conflict

energy, materials, utilities and fin services. 3

Key Takeaways 1

Key debates includes: Did AI steal Brazil's thunder? Drivers of flows, local vs 0

-1

international rates, domestic growth, fiscal dominance and Brazilian elections

-2

Our view: AI is the thunder; LatAm and Brazil benefit from a global capex cycle -3

2-Jan 20-Jan 5-Feb 25-Feb 13-Mar 31-Mar 20-Apr 7-May 25-May 11-Jun

linked to AI. EM has seen sector rotation to Asian AI stocks, not redemptions

Source: B3 and Morgan Stanley Research

Local rates vs global rates: our view - we are in a global Bull Market led by capex;

global rates matter more than local rates at this stage Exhibit 2 : Rates volatility and sector rotation

have led Brazilian underperformance since Brazilian elections are hard to trade at this stage. We remain diversified, but UW

early May domestic cyclicals.