Viva Brasil! A 3X In The Making

This post Viva Brasil! A 3X In The Making appeared first on Daily Reckoning.

Over the past 15 years, Latin American stocks have performed horribly compared to America.

Below is a chart showing how LatAm stocks have fared versus the S&P 500 since 1985.

As this chart rises, Latin American stocks outperform. When it falls, U.S. stocks are winning.

Source: Tavi Costa of Azuria Capital

Over the past 15 years, U.S. markets have absolutely crushed Latin America.

But notice how between 2000 and 2009, Latin American stocks walloped the U.S. Then between 2009 and 2024, LatAm was the dog again. We saw the same pattern from the late 1980s to the mid 1990s.

It’s a cycle. And we’ve just begun a new one. A fresh start where Latin America, and especially Brazil, is set to outperform dramatically.

Here’s a fascinating chart I pulled from a recent investment bank report. It shows how incredibly well Latin American stocks did from 2003 to 2007 (in blue) , and compares it to the current move (in red).

Source: Morgan Stanley Research

This chart shows that LatAm stocks could have years left to run. And another ~3x in gains could lie ahead.

Brazil is currently the cheapest Latin American market, and has been the strongest performer over the past year. The country has incredibly rich natural resources. Oil, iron, gold, copper, silver, rare earths, and plenty of natural gas. Additionally, about 70% of its electricity comes from ultra-cheap hydro power.

Brazil remains my favorite way to play the LatAm boom.

Viva Brasil!

Since we first highlighted Brazil as a buy in February of 2025, the iShares Brazil ETF (EWZ) is up about 66%, plus some nice dividends.

If this cycle is anything like previous ones (see chart above), the move is just getting started.

Additionally, the big investment firms are just now getting on board the Brazil train. Here’s a recent research report by Bank of America titled: Brazil: the new gold?

Source: Bank of America Global Research

Morgan Stanley analysts also single out Brazil as their favorite opportunity in South America.

Brazilian stocks remain very cheap, trading at an average forward P/E of 9.

We are currently witnessing Brazilian stocks re-rating higher. I expect it will continue for years.

Eventually, the LatAm and emerging market party will end. But if history is any guide, stocks will be a LOT more expensive when that happens.

Emerging market cycles are like any other. They start off cheap and hated, and become overpriced and loved. It’s not time to sell until they’re eye-wateringly expensive. We have a long way to go on that front.

Why So Cheap?

So why were Brazilian stocks so cheap, anyway? Partly because the country’s tax system and bureaucracy has been a disaster for companies to navigate.

Brazil was seen as hostile to capital, and not a great place to invest.

However, Brazil just completed the largest tax reforms in its history.

According to Drew Crawford, an American investor living in Brazil, these tax reforms will be hugely beneficial. Here’s an excerpt from a recent post on X:

Before this, a Brazilian company spent 1,501 hours every year just filling out tax paperwork.

That is five times the Latin America average and ten times the OECD rich country average.

Five separate taxes stacked on top of each other (PIS, COFINS, IPI, ICMS, ISS).

Some of these taxes were calculated on the price that already included other taxes.

A tax on a tax on a tax.

The reform wipes out all five and replaces them with two clean VAT-style taxes (CBS at the federal level, IBS at the state and city level).

Brazil tried and failed to pass this for roughly 40 years.

It is now done.

This is big news for Brazil. They’re finally enacting pro-business legislation.

Foreign investment should continue to flood into the country, fueling a cycle of higher growth and a positive re-rating of stock valuations.

I love Brazil going forward. EWZ remains the easiest way to play it. We’ve also highlighted Petrobras (PBR, PBR.A), Vale (VALE), and Nubank (NU), which have all done extremely well.

We’ll continue to explore more emerging markets ideas. I believe strongly that EM will be key to achieving alpha (outperformance) over coming years.

Emerging markets are still wildly under-owned. And we’ve just begun what is likely at least 5 more years of outperformance. This is no time to take profits.

It’s a time to hold, reinvest those dividends, and wait for everyone else to come join the party.

The post Viva Brasil! A 3X In The Making appeared first on Daily Reckoning.

This story originally appeared in the Daily Reckoning . The Daily Reckoning, offers a uniquely refreshing, perspective on the global economy, investing, gold, stocks and today’s markets. Its been called “the most entertaining read of the day.

Source: https://dailyreckoning.com/viva-brasil-a-3x-in-the-making/