The Ibovespa, Brazil’s stock market benchmark, has started the year strongly, prompting XP Investimentos to raise its base-case year-end target for the index to 190,000 points from 185,000.
The revision follows a January rally that saw Brazilian equities advance, placing the country among the world’s top-performing markets.
In its monthly strategy note, XP’s strategists wrote that Brazil was among the biggest beneficiaries in January of a global repositioning away from US assets.
The Ibovespa posted a return of 12.6% in reais and 17.4% in US dollars, while delivering strong alpha versus the MSCI Emerging Markets index, which gained 8.8%, and the MSCI ACWI, which rose 2.9%.
The strong gains were driven almost entirely by foreign investors.
Inflows from abroad into Brazilian assets reached R$23.1 billion in January alone, nearly matching total net inflows recorded in 2025.
Foreign flows remain the key driver
XP emphasises that Brazilian equities remain firmly supported by international flows.
While foreign participation reached record highs at the start of the year, domestic institutional and retail investors continue to be net sellers.
This dynamic was reinforced during discussions with investors in Europe, where XP strategists highlighted sustained positive sentiment toward emerging markets in general and Brazil in particular.
Optimism around Brazil has been renewed, driven by expectations of an upcoming monetary easing cycle and equity valuations that remain attractive compared with other emerging and global markets.
Foreign investors are described as generally more relaxed and less concerned than local investors, even though the 2026 presidential election remains on the radar.
Valuation analysis after the rally
Following the January equity rally, XP carried out a more detailed valuation analysis from three perspectives.
First, Brazilian equities continue to appear inexpensive relative to other emerging and developed markets.
Second, valuation multiples have reverted to their long-term average of around 11 times forward price-to-earnings.
Third, the analysis points to a tighter, effectively near-zero, equity risk premium when compared with real interest rates, which remain high despite the rally.
Based on this framework, XP revised its base-case scenario, raising its end-2026 fair value estimate for the Ibovespa to 190,000 points.
Bull and bear case
Beyond the base case, XP offered both optimistic and pessimistic scenarios to capture probable price swings.
In the optimistic scenario, the company expects real interest rates to drop to 5.5%, earnings and EBITDA to be 10% higher than in the base case, and valuation multiples to increase to 13 times forecast earnings and 6.5 times EV/EBITDA.
Based on these presumptions, XP calculates the Ibovespa’s fair value at 235,000 points, suggesting a 30% upside potential.
The pessimistic scenario, on the other hand, calls for a compression of valuation multiples to their lowest levels, a real interest rate at 8.5%, and earnings and EBITDA that are 10% below the base case.
In this instance, a downside risk of about 20% is represented by the Ibovespa’s projected fair value of 144,000 points.
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