Brazil's market has surged 25% YTD, but now sits significantly above macro-justified levels as improving US-China relations threaten its competitive advantage.
Brazil has been a standout performer in 2025, with the Bovespa climbing 15.5% and the iShares MSCI Brazil ETF (EWZ) delivering an impressive 25% return. This rally has been largely fueled by Brazil's status as a beneficiary of global trade tensions, serving as an alternative supplier to China for agricultural products and industrial goods.
Recent US-China negotiations, however, suggest tariffs may be capped at 30% - a development that would significantly reduce Brazil's substitute advantage as trade relations normalize.
eyeQ's quantitative framework reveals concerning metrics:
For retail investors who have benefited from Brazil's strong performance, this combination of shifting trade dynamics and extended valuations suggests locking in some gains while maintaining a reduced position if you remain constructive on the longer-term outlook.
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