Brazilian investors are betting equity funds will rebound after a year of record outflows, when locals ditched stocks even as foreigners drove the benchmark index to the highest levels ever.
“If we see any signs of interest rate easing going forward, 2026 could indeed be an excellent year for risk assets as a whole,” leading local investors to start adding back exposure into equities, said Clara Sodré, a fund analyst at XP Inc. in Sao Paulo.
Brazilian active equity funds recorded an annual outflow of 54.5 billion reais in 2025, the most on record according to data from Brazil’s Capital Markets Association Anbima. That compares to the 16.2 billion reais withdrawn in 2024, a period when the Ibovespa index fell 10%.
Most of the outflows were recorded in the first half, totaling 41.2 billion reais. And yet while withdrawals slowed over the last few months of the year, they still continued, with some major investors — including some of the nation’s largest pension funds — keeping their allocations into equities at a historical low.
The outflows stand in stark contrast to the Ibovespa’s 34% rally last year, which benefited from global investors reallocating away from the US and into developing nations like Brazil. Expectations for a weaker dollar and interest rate cuts by the US Federal Reserve have also pushed investors to increase exposure across emerging markets in general, with the MSCI Emerging-Markets Index rising 31% last year and reaching a new high in January.
In total, foreigners bought 25.4 billion reais of local stocks last year, a reversal from 2024, when outflows totaled 32.1 billion reais, according to data from stock exchange operator B3 SA.
For local investors, benchmark interest-rates hovering near a two-decade high of 15% are an incentive favoring fixed income, while a number of tax-exempt investment products compete with equities for capital and keep Brazilian investment away from the stock market, said Rafael Oliveira, an equity manager at Kinea Investimentos, one of the country’s largest funds.
Last year, fixed-income funds recorded 84.3 billion reais in inflows, occupying the top spot across all asset classes, according to Anbima.
“The money is not going into risky assets in Brazil,” Oliveira said. “Even though the stock market is delivering returns of about 2.5 times those of fixed income, local investors are not experiencing any FOMO, as they feel comfortable with the returns they are achieving given the level of risk,” he added, referring to “fear of missing out.”
Lower rates would help tip the balance in favor of stocks, potentially drawing more local investors into equity funds. And with steady foreign investment continuing to buoy returns, that adds further incentive for locals to step back in, Oliveira said.
Investors who stuck it through last year were rewarded for doing so.
“Those who stayed are investors who have an appropriate allocation to equities, can withstand volatility and have lived through other cycles,” said Florian Bartunek, chief investment officer and co-founder of equity fund manager Constellation Asset Management. “Our message is: endure the volatility — it’s worth it.”
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