The shift in foreign investors’ mood had already been flagged by Intraday at the start of the week, but it has intensified since then. It is no coincidence that the benchmark Ibovespa stock index has moved away from its record level of 199,000 points and fell below 180,000 points on Thursday (21).

From the start of the year through the peak reached on April 14, Brazil’s equity market saw inflows of R$69 billion from foreign investors, according to B3 data. That was almost three times the amount that entered the market in all of 2025, when inflows totaled R$25.4 billion.

Since April 15, however, investors have withdrawn R$23.9 billion, a little more than one-third of the volume that had entered the stock market in 2026. During that period, there were inflows in only two sessions: April 20, when R$32 million entered the market, and May 8, when net inflows totaled R$118.8 million.

“The mood has turned more negative,” Bank of America strategists David Beker and Paula Andrea Soto said after a round of meetings with investors in London and Paris in recent days.

“Concerns about the external backdrop, combined with recent political developments in the region, are prompting investors to take a more cautious stance. A few weeks ago, clients were waiting for the war to end before increasing exposure to Latin America. Now, the main question is whether exposure to the region will need to be reduced further,” said the BofA team in a note to clients.

War and oil reshape the outlook

In mid-April, foreign investors were extremely optimistic about Brazil, as Intraday reported several times, especially during the spring meetings of the International Monetary Fund.

The country was seen as a relative beneficiary of the war backdrop because it is a net oil exporter, is rich in natural resources and is geographically distant from the conflict. In addition, with the highest real interest rates in the world, the approaching cycle of Selic base-rate cuts was seen as another attraction for domestic stocks.

Since then, however, the market mood has changed decisively. The absence of a quick resolution to the war in the Persian Gulf has imposed a high floor for oil prices, which have struggled to trade below $100 on a sustained basis.

As a result, the impact on inflation is being felt around the world. Fearing second-round effects, many developed markets are already starting to price in interest-rate hikes by central banks, while the rotation into technology stocks does not favor Brazil.

“Although there is still no clarity on how long the war will last, clients believe the damage has already been done,” the BofA strategists said. “The investors we met highlighted concern about higher global rates and their potential impact on currencies and flows to Latin America,” Beker and Soto said.

They also noted that there is additional pressure on central banks in the region and that, even if Brazil’s monetary easing continues, “the magnitude of the cuts is unlikely to provide meaningful relief to the corporate sector.”

In addition, quarterly earnings from technology and artificial-intelligence-related companies were exponential and historically exceptional, contributing to the reversal of the flows seen at the start of the year. That comes on top of the approaching elections and recent local political developments, which have increased investors’ perception of risk and brought a new wave of volatility to local markets.

Brazil rally comes under threat

Against the new global market backdrop, discussions are growing over whether the rally in Brazilian stocks still has enough strength to continue. According to Andre Suaid, head of Latin America equities at Marex, “the party seems to be going on pause.”

“The rally in technology and artificial-intelligence-related stocks continued to accelerate, further concentrating global capital flows in U.S. equities. Expectations of persistent inflationary pressures and higher-for-longer interest rates also weighed broadly on emerging markets, tightening financial conditions and limiting investors’ appetite for risk outside the U.S. The rally in Brazil’s stock market is, in fact, at risk,” he said.

Ricardo Maluf, head of the equity trading desk at Warren Investimentos, said an important part of the flow that went into Latin American stock markets this year had a more tactical component. It was supported by diversification away from the dollar, concerns over artificial-intelligence capex, election-related trades and a defensive move tied to the geopolitical backdrop, “not least because our market has a heavy weighting in banks and commodities and works relatively as a ‘safe haven’ in this environment.”

In Maluf’s view, the reversal of that movement comes as geopolitical conflicts lose some marginal intensity and investors refocus on global fundamentals, especially earnings expectations linked to technology companies, which have returned to their radar. “That ends up attracting flows back to the U.S. and Asia,” he said.

External factors

According to J.P. Morgan’s equities team, led by Emy Shayo Cherman, Brazil’s recent political events do not offer an entry opportunity, even though EWZ, the main Brazilian equity exchange-traded fund on Wall Street, is down 4% since the start of the war after having risen 8% even during the conflict.

“The main reasons behind the decline in Brazilian markets are more external than internal. We believe investors would need the reopening of the Strait of Hormuz, lower oil prices and a decline in Treasury yields to start buying again. For foreign investors, downside risk is greater, considering that the real seems asymmetrical toward appreciation,” Emy Shayo Cherman and Cinthya Mizuguchi said.

J.P. Morgan’s team monitored episodes in recent years when outflows from Brazil exceeded R$10 billion in a 15-day rolling window. “We found 12 episodes of withdrawals of this magnitude or larger, two of which occurred at the start of the pandemic.

“The outflows during Covid were the longest-lasting and posted the largest withdrawal volumes. All other episodes were much shorter, with a duration similar to the current one. So, if history is any guide, the outflow may be nearing an end.”