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By Brasil 247 -  After notching eight nominal records in September, Brazil's benchmark stock index, the Ibovespa, closed the first nine months of 2025 up 21.58% in local currency, despite the country's benchmark Selic rate holding at 15% — its highest level since 2006. The figures were reported by O Globo. It marked the strongest January-to-September performance since 2017, when the index gained 22.3%.

Measured in dollars, the rally is even more striking. The Ibovespa has climbed 41.1% this year, bolstered by a 14% drop in the US currency against other global peers. The greenback ended the latest session trading at 5.32 reais.

Drivers of the rally

Analysts point to three main factors behind the string of record highs in Brazilian equities:

●A weaker dollar and lower US interest rates - The Federal Reserve cut rates in September and is expected to deliver two more reductions by December, fueling demand for higher returns outside US Treasuries.

●Prospects of a Selic cut in 2026 - Markets expect Brazil's central bank to begin an easing cycle next year, lowering borrowing costs for companies.

●Cheap valuations - Price-to-earnings ratios on Brazilian stocks remain below historical averages, enhancing their appeal.

Foreign capital turns to emerging markets

Eduardo Grübler, portfolio manager at Warren Investimentos, said that global asset rotation is favoring Brazil.

"Outside the US, there aren't many places to go other than emerging markets. Europe has already seen solid gains, but when investors move out of a big market that always delivers returns, the natural shift is into emerging economies," he noted.

He stressed that the interest rate differential remains a powerful incentive:

"The biggest advantage right now is the interest rate dynamics, which strongly favor foreign investors bringing capital to Brazil, especially with the real strengthening against the dollar."

Brazil and its peers

Brazil's rally mirrors broader momentum across emerging markets. In 2025, Mexico's main index has risen 27% in dollar terms, South Africa's 34%, and Indonesia's 14%. Still, analysts emphasize that the Ibovespa remains undervalued by historical standards, leaving room for further gains.

As of September 26, foreign investors had a net inflow of 4.8 billion reais into the B3 exchange, bringing the year-to-date total to 26 billion reais — the highest since 2022. Domestic institutional investors, particularly pension funds, moved in the opposite direction, withdrawing 40.5 billion reais as they sought safety in government bonds amid elevated interest rates.

Rates, fiscal outlook and investor sentiment

Even with borrowing costs high, analysts say expectations of future cuts are already improving sentiment.

Siqueira explained: "High rates are bad, but the idea that they'll keep rising is worse. When the central bank signals it will stop hiking, that removes the main headwind."

Economists at UBS project the Selic will fall to 12% by the end of 2026, which would provide significant relief to businesses and households. On fiscal policy, analysts note that markets have largely priced in the government's rising debt-to-GDP ratio.

Companies leading the charge

The prospect of lower rates has fueled especially strong gains in cyclical, consumer-driven stocks. Education group Cogna has soared 209% in 2025; apparel retailer C&A is up 117%; and homebuilder Cury has gained 102.2%.

Siqueira underscored the trend: "These are companies with modest profits, thin margins and higher leverage. In a more favorable scenario with expected rate cuts, they stand to benefit the most."

(Reported by Brasil 247 on October 1, 2025)