Skip to content

CFDs are complex financial instruments and come with a high risk of losing money rapidly due to leverage. You should consider whether you understand how CFDs work, and whether you can afford to take the high risk of losing your money. CFDs are complex financial instruments and come with a high risk of losing money rapidly due to leverage. You should consider whether you understand how CFDs work, and whether you can afford to take the high risk of losing your money.

Brazil: Time to Take Profits After Strong Rally?

Brazil's market has surged 25% YTD, but now sits significantly above macro-justified levels as improving US-China relations threaten its competitive advantage.

Bovespa Source: Bloomberg images

Written by

eyeQ

eyeQ

Article publication date:

Market Reversal Risk

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.

Valuation Warning Signs

eyeQ's quantitative framework reveals concerning metrics:

  • Bovespa trades +4% above macro-warranted fair value
  • Among the most richly valued indices globally relative to macro conditions
  • Strong historical correlation between such valuation gaps and subsequent corrections

Key Market Implications

  • Tactical Opportunity: Ideal time for profit-taking after capturing substantial YTD gains
  • Position Sizing: Consider reducing overweight positions while maintaining strategic exposure
  • Risk Management: Current premium suggests asymmetric risk-reward with limited upside
  • Sector Exposure: Agricultural exporters face greatest vulnerability from US-China normalization

 

Michele Bullock Source: eyeQ

 

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.

Ready to open an IG account?

Start your trading journey now

  • Forex
  • Shares
  • Indices

See more forex live prices


Prices above are subaject to our website terms and agreements. Prices are indicative only. All shares prices are delayed by at least 15 mins.

See more shares live prices


Prices above are subaject to our website terms and agreements. Prices are indicative only. All shares prices are delayed by at least 15 mins.

See more indices live prices


Prices above are subaject to our website terms and agreements. Prices are indicative only. All shares prices are delayed by at least 15 mins.

 

 

This information has been prepared by IG, a trading name of IG Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients.

CFDs are a leveraged products. CFD trading may not be suitable for everyone and can result in losses that exceed your initial deposit, so please ensure that you fully understand the risks involved.