The Real Falls, but Brazil Attracts Investors

Despite fiscal challenges and the depreciation of the real, Brazil continues to attract investors thanks to its solid economic foundation, potential for revaluation in key sectors, and diversified strategies that help mitigate short-term risks.

In 2024, the real experienced the steepest depreciation against the dollar, with the trend accelerating in the final months of the year. By year-end, the Brazilian currency had lost more than 20% of its value against the U.S. dollar. However, despite this sharp decline, the market sees valuable opportunities for investors.

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USD/BRL

The recent deterioration of Brazilian financial assets reflects ongoing fiscal tensions that have plagued President Luiz Inácio Lula da Silva’s administration since his return to power.

Brazilian Currency Depreciation

The government’s failure to instill confidence through spending control measures in November 2024 marked a critical point but was not the root cause of the problem. The key catalyst for a recovery in Brazilian assets lies in clear signs of fiscal discipline.

Complicating the scenario is an increasingly challenging global environment, with Donald Trump’s second term in the U.S. presidency and the potential escalation of global trade tensions.

The Brazilian currency started the year at 4.87 per dollar and ended at 6.17, marking a 21% devaluation. In financial terms, São Paulo’s benchmark stock index, the Bovespa, fell 26% in dollar terms—a significant drop that often presents strong buying opportunities.

Attractive Valuations and Optimistic View

Today, Brazil’s market is at historic lows, even below levels seen during the pandemic and approaching the lows of 2016 during Dilma Rousseff’s government. This positions Brazil as an attractive investment opportunity.

While Brazil faces a fiscal deficit, it does not have a balance of payments crisis. In other words, the economy is undervalued to the point where it presents attractive opportunities for tourism and boosts sales and exports for domestic companies due to the weak real.

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ABOUT THE AUTHOR See More
Ignacio Teson
Ignacio Teson
Economist and Financial Analyst
Ignacio Teson is an Economist and Financial Analyst. He has more than 7 years of experience in emerging markets. He worked as an analyst and market operator at brokerage firms in Argentina and Spain.
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