Once a frequent source of instability, Brazil’s general elections scheduled for this autumn are no longer a concern for investors.
This shift reflects Brasília’s strengthened economic and financial position, which has improved the appeal of Brazilian equities. While they have long attracted dynamic investors, they are now also suitable for neutral portfolios.
A lost decade
Just over a decade ago, Brazil entered a period of deep economic and political instability. After years of optimism, commodity prices - central to Brazil’s export base - collapsed in 2014. This sharply reduced exports and fiscal revenues, creating significant imbalances in external accounts and public finances.
In response, authorities cut public investment and social transfers, while the central bank tightened monetary policy to limit the depreciation of the Brazilian real.
These measures proved excessively harsh, deepening and prolonging the recession. The fragile recovery that followed was derailed by the pandemic, and it was only in 2022 that Brazil’s economy returned to its 2014 level.
Internal markets supported growth
This economic revival coincided with Lula’s return to power. As during his first two terms, from 2003 to 2011, the president prioritised domestic demand to support growth.
However, his approach has been more consensual, reassuring economic agents after years marked by corruption scandals and the polarising presidency of nationalist right-wing leader Jair Bolsonaro, now imprisoned for attempting a coup.
From stagnation to unexpected resilience
Lula’s main achievement has been expanding the domestic market. Increases in the minimum wage, tax reductions on essential and manufactured goods, strengthened social transfers, and more progressive income taxation have improved purchasing power for lower-income households.
Poverty declined, consumption accelerated, economic activity strengthened, and job creation increased.
Unemployment fell to a historic low, fuelling household spending and creating a virtuous cycle. Between 2021 and 2024, annual GDP growth consistently exceeded expectations, reaching at least 3%.
As in the past, stronger domestic demand triggered inflationary pressures due to internal bottlenecks.
However, the policy rate increase to 15% did not derail consumption, supported by falling unemployment and rising real wages. The major tax reform being implemented from this year through 2033 should also help ease price pressures over time by creating a genuine national market, replacing the current fragmented system.
A skilful diplomatic stance
Although Brazil remains relatively closed to foreign trade, merchandise exports (particularly commodities) have also supported GDP growth in recent years.
Despite trade tensions and a strained relationship between Lula and Trump, close to former president Bolsonaro, Brazilian exports remained robust in 2025.
This resilience reflects Brazil’s diplomatic pragmatism. Brasília maintained channels of dialogue with Washington, limiting the application of the high tariffs sought by Trump.
The need to curb inflationary pressures in the United States further facilitated the removal of some duties on Brazilian food products such as coffee and meat.
Brazil also benefits from hosting 17% of global rare earth reserves, a strategic asset as the US seeks to reduce its dependence on China.
At the same time, Brazil has intensified trade with other partners, particularly China, which is now its leading export destination. The recent trade agreement with the European Union underscores this diversification strategy.
2026, it will be almost business as usual
Thanks to sound economic management, Lula is currently the frontrunner in the October presidential election. Polls suggest victory over the nationalist right-wing candidate, making a return to Bolsonaro-era policies unlikely.
After two decades of instability, voters favour political continuity and a more consensual climate.
Only the emergence of a centre-right candidate could challenge the incumbent. Such a scenario would not concern investors, as it would not imply a sharp departure from the current centre-left policy mix.
The campaign period is nonetheless expected to be tense. Bolsonaro’s supporters remain highly mobilised, making rising political tensions and increased financial volatility likely.
An option for neutral or dynamic portfolios
This, however, does not undermine the appeal of Brazilian equities. The gradual implementation of tax reform and continued reforms in a calmer political environment should enhance the country’s economic potential.
After gaining 35% over the past twelve months, the Brazilian stock market is expected to continue rising. Given its high volatility, however, it remains unsuitable for defensive investors, but appropriate within neutral or dynamic portfolios.
See our complete investment portfolio suggestion:
