Brazil faces limited catalysts across rates, valuations and earnings

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Brazil faces limited catalysts across rates, valuations and earnings

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Brazil faces limited catalysts across rates,

valuations and earnings

Investment Strategy

Key takeaways 26 June 2026

Investment Strategy• Valuations remain unconvincing, as Brazil trades broadly in line with historicals once

Latin America adjusted for rates.

• Earnings expectations for domestic sectors in Brazil continue to be revised down.

This week in numbers

Performance of the week, USD terms: The Ibovespa +1.5%, Mexbol -1.6%, versus the

S&P 500 -1.9%, EM -1.7% in USD total return terms. Oil is down 7%. Our quantitative

screen of “Brazilian Magnificent 7” stocks, (Mercado Libre, Nubank, WEG, BTG Pactual,

Raia Drogasil, Localiza, and Itaú), which has a growth bias, is +3% this week. Our

“Unforgettable 7” screening (Petrobras, Vale, JBS, Banco do Brasil, Ambev, Bradesco, DavidBz Econ/FIBeker& LatAm>> EQ Strategy

Gerdau), which has a value bias, is -0.2% this week. Merrill Lynch (Brazil)

+55 11 2188 4371

Valuations in Brazil remain unconvincing. Brazil ex‑commodities trades at a 6% david.beker@bofa.com

discount to its historical average (12m forward P/E). However, once we adjust for the PaulaLatAm AndreaEquity StrategistSoto, CFA >>

current level of interest rates, that discount largely disappears, with Ibov Merrill Lynch (Brazil)

+55 11 2188 4226

ex‑commodities now trading in line with its historical relationship to rates (Exhibit 2). paula.soto@bofa.com

While further hikes are not our base case, risks have increased at the margin (see Carlos Peyrelongue >>

Emerging Insight report). Mex Eq Strat/Research Analyst

Merrill Lynch (Mexico)

+52 55 5201 3276

Earnings expectations for domestic sectors continue to be revised down. carlos.peyrelongue@bofa.com