Institutional investors follow suit, ending the year with net withdrawals on the secondary market
01/06/2025
The turbulence triggered by the government’s unveiling of weaker-than-expected fiscal measures, anticipation of aggressive protectionist policies from Donald Trump, and rising Selic rates kept foreign investors at bay from Brazil’s stock market throughout 2024.
Data from B3, the Brazilian stock exchange, reveals that foreign investors pulled R$32.1 billion from the secondary market (trading of already-listed shares) last year. This marked the largest annual outflow since 2020, the first year of the pandemic, when the segment saw a R$40.1 billion deficit, according to a Valor Data analysis. The figures exclude IPOs and public offerings.
Institutional investors also ended 2024 with net withdrawals, recording a R$37.5 billion deficit in the secondary market. By contrast, only individual investors finished the year with a positive balance, contributing R$30.8 billion.
Michel Frankfurt, head of Scotiabank’s brokerage in Brazil, casts doubt on the prospect of significant foreign inflows in the near term. “We won’t see substantial flows. There might be some activity to capitalize on stock market bargains, but we lack a strong ‘narrative’ to create momentum. It’ll just be a ripple,” he explained.
Mr. Frankfurt added that Brazil appears to have been “abandoned” by global investors, hindered by its failure to differentiate itself on the global stage and internal woes like worsening government accounts and disappointment over the spending cut package.
HSBC analysts echoed this sentiment, expressing concern over the vicious cycle stemming from fiscal policy frustrations. Last week, they downgraded their recommendation for Brazilian equities from neutral to “underweight,” citing growing pessimism about the country’s outlook.
“Brazil fits the profile of a ‘classic value trap,’” wrote analysts Alastair Pinder, Nicole Inui, and Herald van der Linde in their report.
While acknowledging that Brazilian equities are currently undervalued—trading at a projected 12-month price-to-earnings ratio of 6.6 times—they argue that asset revaluation is “unlikely” until the Selic benchmark interest rate falls or fixed-income returns decrease, a shift they do not anticipate before the second half of 2025.
*By Bruno Furlani
Source: Valor International