JPMorgan sees Brazil as a standout in the Fed's new interest rate cut cycle.

247 - With expectations that the US Federal Reserve (Fed) will begin a new cycle of monetary easing on September 17, JPMorgan has reinforced its buy recommendation for Brazilian assets. The analysis, published by the InfoMoney portal, highlights that, unlike other periods of US interest rate cuts, the current movement could bring benefits to emerging markets, especially Brazil.

According to the report, when reviewing episodes of interest rate cuts since 1998, analysts note that such measures typically occurred during times of global crisis—such as the collapse of the LTCM fund, the Russian crisis, 9/11, the dot-com bubble, the 2008 financial crisis, and the Covid-19 pandemic. In contexts like these, investors sought assets considered safer, strengthening the dollar and causing the devaluation of Latin American currencies, in addition to local inflationary pressures.

A different cycle than the past.

According to JPMorgan, the current situation is unique because it is occurring in an environment of a "soft landing" for the US economy, with no signs of a sharp recession, combined with a weaker dollar trajectory. This, according to analysts, favors further interest rate cuts in Latin America and creates room for significant gains in the regional stock market.

In the Brazilian case, the bank points out that the expectation of the Central Bank starting monetary easing in December could become an important trigger for the Ibovespa.

Key sectors and actions highlighted

The institution maintained its sell recommendation for commodities, but reiterated its buy recommendation for sectors linked to the domestic market, such as Real Estate, Finance, Consumer Discretionary Sector, and Utilities. The rationale is that, despite the economic slowdown, the fall in inflation increases disposable income and stimulates consumption.

In recent portfolio adjustments, Banco do Brasil (BBAS3) was removed due to the deterioration in the quality of agribusiness assets, which is putting pressure on results and dividends. Nubank (BDR: ROXO34) was included, supported by growth in its Mexican operation, which is expected to reach breakeven later this year. Rumo (RAIL3) was also excluded due to weak operational prospects.

History and projections

The survey shows that, historically, emerging markets have outperformed developed markets in the periods leading up to and following the first Fed rate cut. During this window, Brazil even recorded an average appreciation of 16,9%.

Although full cycles of monetary easing are generally associated with crises and negative asset performance, JPMorgan's assessment is that the current context tends to repeat the most recent exception, when different markets showed significant gains.