It makes no sense to invest in the Brazilian stock market. That is the widespread sentiment that has taken hold on Faria Lima, São Paulo’s financial hub. Local returns are mediocre, and the US market is the only rational destination for global capital. After all, that is where the tech monopolies are, along with an infinite capacity for permanent reinvention — so-called American exceptionalism. This is the conviction that prevails among local investors.
Brazil has a collection of intractable obstacles, from chronic bureaucracy to legal uncertainty, which lead to higher systemic and institutional risks. Hence the axiom: a country that works has a stock market that makes sense; a country that doesn’t, doesn’t.
But does this logic hold up in practice?
Before accepting the axiom, we analyzed two extremes:
Interestingly, over long return windows in dollars, Argentina delivered returns competitive with other markets, while China posted an anemic performance, approaching Brazil’s.
Table 1 – Internal Rate of Return of stock market indices in US Dollars¹
We dug into a few dozen academic papers on the subject. There appears to be a categorical consensus: there is no meaningful correlation between a country’s GDP growth and the appreciation of its stock market over the long term. In fact, the papers find a negative correlation in both developed and emerging markets.
Figure 1 – GDP growth and annualized stock market return between 1970 and 2011³
GDP measures total economic output, but the equity investor only captures earnings per share. The reason for this disconnect rests on four pillars:
In the early 2000s, Chinese growth became the consensus. The market priced in decades of expansion in just a few years. When the growth actually came, it was already in the price. Since then, geopolitics and the cost of capital have explained performance, while GDP kept rising in a vacuum.
Figure 2 – Shanghai stock index performance in dollars
Since 1989, GDP growth has explained only about 25% of the appreciation of US companies. The rest is explained by margins, capital allocation efficiency and changes in the cost of capital.
Table 2 – What explains the growth of the US stock market?⁴
In recent years, B3 companies delivered net revenue growth of 11% p.a., while NYSE companies grew 9% p.a. The significant difference in returns did not come from operations, but from multiple expansion. While EV/EBITDA in the US jumped from 8x to 17x, in Brazil it withered to levels of 5x.
Figure 3 – Annual net revenue growth of NYSE and B3 companies in local currency
Figure 4 – EBITDA multiple for S&P 500 and Ibovespa companies
The same phenomenon is found in the world of Private Equity. Even though portfolio companies in Brazil grow faster than those in the US, returns there are better due to price inflation.
Figure 5 – Net revenue growth of Private Equity portfolio companies in local currency⁵
Part of this multiple inflation came from an international capital flow that migrated to the US. At the end of 2010, foreign investors held US$2.8 trillion in stocks traded on US exchanges. By the end of 2025, this amount had grown to US$19.9 trillion. Foreign investors’ holdings of US assets went from about 10% of US GDP in 2002 to more than 60% in 2025. This flow moves markets.
Figure 6 – Foreign ownership of US-listed companies⁶
We disagree with the view that “it makes no sense to take risk in Brazil”. The return on an investment does not stem from expected growth, but from the gap between what the market prices in and what reality delivers.
Spectra’s case illustrates this well, since we have a relatively diversified portfolio, with more than 700 assets having passed through it. Our portfolio has a bias, as we believe we invest in companies that perform better than average. Even so, it illustrates the point that, if well managed, it is possible to achieve returns uncorrelated with the Brazilian economy.
We show each year’s GDP growth, the aggregate growth of the portfolio in the same year, and the IRR that all investments made in that year have delivered to date (or upon exit).
Table 3 – GDP growth, internal rate of return by investment year and growth of portfolio companies
Brazil’s structural problems are nothing new; they are the base case and are already fully priced in at current market prices. The cost of capital here is high, which creates a severe asymmetry: any absence of disaster turns into profit. In the US, optimism is embedded in multiples that require perfection to be justified.
Every major market turn begins when the consensus seems unquestionable. And today, the consensus is to give up on Brazil.
¹Até agosto de 2026.
²Jay R. Ritter. 2012. Is Economic Growth Good for Investors? Journal of Applied Corporate Finance
³Javier Estrada. 2012. Blinded by Growth. Journal of Applied Corporate Finance
⁴Greenwald, Lettau & Ludvigson. 2025. How the wealth was won: factor shares as market fundamentals. Journal of Political Economy.
⁵Cambridge Associates, Spectra Investments
⁶Treasury International Capital System – U.S. Department of the Treasury
