Gold and stocks stand out amid high rates, volatility

In general, Brazil benefits in such moments, says Mário Felisberto, chief investment officer (CIO) at Santander Asset Management. “In 2025, we saw a very positive trajectory in equities, and there does not seem to be much risk of something happening that would derail this path,” he says.

Felisberto expects uncertainty and high volatility ahead, given the lack of clarity around candidates and the very close odds between President Lula (Workers’ Party, PT) winning re-election and a different name taking office in 2027. “But when there is a combination of a positive international backdrop and, domestically, economic fundamentals improving with falling interest rates, this tends to favor risk assets even if volatility appears.”

Rogério Freitas, CIO for wealth management and private banking at the ASA Group, controlled by Alberto Safra, sees March as a turning point. “That’s when the election will start to be priced in, because it is the deadline for candidates to step down from their current posts,” Freitas says.

The start of rate cuts, expected in March by Santander Asset, could begin to reshape investor portfolios, Felisberto says. The asset manager projects that 2026 will end with the Selic at 12.5%. “But there is asymmetric upside risk toward lower rates if inflation expectations remain anchored and activity stays moderate, opening room for the Central Bank to cut a bit more,” he says. The political scenario is the key factor in determining how low the benchmark rate can go by the end of 2026 and in shaping investment strategy.

“Keeping interest rates at a higher level for longer has basically contributed to strengthening the real against the dollar and did not hurt equities, but from an allocation standpoint it pushed local investors toward a conservative stance,” Felisberto says. Funds flowed into low credit-risk assets and tax-exempt bonds. Foreign investors, meanwhile, were the main engine of the stock market.

In fixed income, the best performance came from the IRF-M, an Anbima index that replicates a basket of fixed-rate Treasury bonds, with gains of 18.04% year to date through yesterday. The IMA-B 5+, which combines inflation-linked government bonds with maturities longer than five years, and the IMA-B, with shorter maturities, lagged behind, rising 13.99% and 13%, respectively—below the average Selic of 14.32% over the period. Projected IPCA inflation was 4.32%.

The dollar, under pressure from seasonal profit and dividend remittances at this time of year, rose 4.41% in the month through yesterday but is down 9.9% for the year. In equities, the index tracking companies with strong governance and sustainability practices (ISE) advanced 34.38% over the period, while the index of smaller-cap companies rose 29.54%, in line with the consumer sector index (Icon), up 27.30%.

For Marco Bismarchi, partner and portfolio manager at Tag Investimentos, Brazil still offers substantial yield in fixed income, especially in inflation-linked bonds (NTN-Bs). This is where the firm currently allocates most of its clients’ portfolios. In equities, he remains slightly positive, viewing the market as cheap and supported by the prospect of some rate cuts next year. “We know it will be a volatile year because of the election, but there is still some value.”

Gold, an asset that goes beyond protection, according to Bismarchi, performed well due to the view that governments worldwide are spending more than they should, eroding the value of money. Exposure was reduced, however, after the sharp appreciation. Copper and uranium round out the portfolio as commodities tied to the electrification theme and greater use of artificial intelligence.

In an environment of “financial repression,” caused by a phase of low or even negative real interest rates globally, followed by questions about fiat currencies, everything became expensive across global asset classes, says Freitas of ASA. Gold, silver, assets linked to the real estate chain, equities and credit across all risk levels benefited.

“The next stage is emerging markets, as investors will seek yield to avoid losing money in other low-return assets,” he says. “If there is no exogenous shock, this search should continue and emerging markets benefit from excess liquidity.”

A more neutral role for the state would allow the economy to operate with lower real interest rates, moving toward the average seen some years ago, Freitas adds. “If real rates fall from 10% to 4.5%, there could be a very significant repricing of assets in Brazil.” That would boost equity valuations and shift a substantial portion of investor resources—currently overweight in fixed income—into equities and multimarket funds (Brazil’s version of hedge funds). “There would be a major change in allocations by family offices, individuals and pension funds,” says the ASA CIO.

Re-election and the possible continuation of economic policies that increase debt relative to GDP, however, bring as a side effect higher real interest rates, he says. “These current 10% real rates are the result of an excessively expansionary fiscal policy,” Freitas continues. “If it goes in that direction, the market will anticipate it, the real will end up losing value, equities will decline, and the local market will be dragged down by this global repression environment.” In such a setting, real rates fall for the wrong reasons, as inflation erodes the nominal Selic rate.

This binary political scenario favors NTN-B bonds, Freitas says, because investors are protected against potential currency depreciation feeding into inflation and stand to gain if outcomes are benign, with declines in the implicit fixed-rate component of the bonds. Overall, he advises maintaining exposure to equities and multimarket funds as well, because if conditions evolve favorably, the “upside potential is very large—it is worth it even while taking risk.”

A less restrictive external environment and the start of a rate-cutting cycle in Brazil will allow investors to hold portfolios less tied to the CDI, says Jayme Carvalho Junior, executive superintendent for investments at Daycoval. “There is room for greater risk exposure, but not aggressively.” Fixed-rate bonds and actively managed fixed-income funds are among the preferences, based on the expectation that the Selic will be reduced by two percentage points over 2026.

There are also favorable winds for equities, which have managed to move on the fuel of foreign capital “in a market that has become smaller, with fewer companies and no major IPO expectations,” Carvalho says. “But there is a flow in a falling-rate environment that can leave more revenue and net cash in corporate profits, especially for more leveraged companies.” He also sees opportunities in real estate funds.