Daniel

Most people think Brazilian assets are cheap because something is wrong with Brazil. They're wrong. Brazilian assets are cheap because of a structural wiring problem between where the money is and where the opportunity is. 92% of global institutional capital is allocated to the US, Europe, and developed Asia. Emerging markets get 8%. Brazil gets a fraction of that 8%. The average American pension fund has 0.1-0.3% exposure to Brazil. The average endowment: similar. When you ask why, you get the same five objections every time. "The taxes are too high." Brazil's corporate tax rate is 34%. The US effective corporate rate (federal plus state) averages 25-27%. The gap is real but it's single digits, not the chasm people imagine. And Brazil just passed the largest tax reform in its history (2023), replacing five overlapping consumption taxes with a single dual VAT system. The new system takes full effect by 2033. Every multinational that set up in Brazil before the simplification captured the discount. Every one that waits until after pays full price. "The bureaucracy is impossible." The bureaucracy is complex, slow, and very real. It's also completely navigable. JBS built an $86 billion company inside that bureaucracy. Nubank built an $85 billion company inside it. WEG built a $40 billion company inside it. Embraer, Suzano, Ambev, TOTVS, Localiza, Rede D'Or. Every one of these was built inside the same system that foreigners say is impossible. The bureaucracy filters out everyone who won't do the work. The ones who do the work operate in a market with less competition precisely because everyone else quit at the paperwork. "The currency is volatile." The real has traded between R$4.80 and R$6.30 against the dollar over the past three years. Volatile, yes. But every time the real weakens, Brazilian exporters become more competitive globally and dollar-denominated investors buy assets cheaper. The BCB holds over $330 billion in reserves. It intervenes actively. It raised rates to 13.75% before the Fed started hiking and fought inflation faster and harder than most major central banks in the 2021-2023 cycle. BCB independence was formalized by law in 2021 with fixed four-year terms. This is not the currency regime of the 1990s. "The political environment is unstable." Brazil has held uninterrupted democratic elections since 1989. Power has transferred peacefully between left and right multiple times. The central bank operates independently of the president. The judiciary blocked executive overreach from both Bolsonaro and Lula. The institutions held. Compare that to the US in January 2021 or the current state of French politics. Every country has political risk. The difference is that Brazilian political risk is priced in. American political risk is priced as if it doesn't exist. "Corruption is systemic." Lava Jato (Operation Car Wash) was one of the largest anti-corruption investigations in the history of any democracy. It prosecuted sitting presidents, senators, governors, and the CEOs of the largest companies in the country. Billions were recovered. Executives went to prison. The system exposed its own corruption and punished it publicly. Very few countries have investigated and convicted their own leaders at that scale. Brazil didn't hide from corruption. It prosecuted it on live television. Now look at what that money is missing while it debates these objections... A factory in Joinville, Santa Catarina producing precision components at 25% margins with zero debt trades at 4-8x EBITDA. The identical factory in Wisconsin trades at 10-15x. Same product. Same margins. Same customers. Half the price. The Ibovespa trades at under 11x forward earnings. The S&P 500 trades at 21x. Brazilian farmland costs $5,200/hectare in MATOPIBA. Iowa costs $49,400. Both grow soybeans. Brazil harvests twice per year. Brazilian beef exports generated $18 billion in 2025 (up 40% in a single year). The companies that produced it trade at a fraction of their American and Australian equivalents. Nubank is worth $85 billion and serves 110 million customers. It was founded 13 years ago by three people with no bank. WEG is a $40 billion industrial manufacturer from a town of 180,000 people that exports to 135+ countries. Most global investors cannot name it. Embraer builds half the regional jets flying in America. Its market cap is a rounding error compared to Boeing or Airbus. The discount has nothing to do with risk. The infrastructure connecting global capital to Brazilian opportunity doesn't exist yet. Nobody covers it. Goldman doesn't have an office in Maringá. JP Morgan doesn't have an analyst in Campo Grande. Morgan Stanley doesn't follow mid-market manufacturers in Caxias do Sul. Without coverage there's no capital flow. Without capital flow there's no price discovery. The asset stays cheap regardless of quality. Meanwhile in the last 18 months: Chinese FDI in Brazil grew 113%. The US committed $565 million to critical minerals. The EU signed its largest trade deal ever (720 million consumers, 90%+ tariffs eliminated). The Ibovespa hit 16 all-time records in 2026. Up 22% YTD. Up 30%+ in dollar terms in 2025. BTG Pactual reported "enormous increase in interest from large pension funds and sovereign funds." The objections haven't changed in 20 years. The taxes. The bureaucracy. The currency. The politics. The corruption. The smart money heard all five objections and invested anyway. The discount isn't permanent. It never is. The question is whether you position before the bridge is built or after everyone else has already crossed it. Brazil isn't broken. Most of the world just hasn't figured out what's here yet. They will.

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