Stock exchange loses shine after historic rally and market is already looking at electoral risk

After accumulating a series of records at the beginning of 2026, Ibovespa entered a phase of greater caution. The slowdown in the flow of foreign capital, the prospect of high interest rates for longer and the approaching presidential elections have reduced investors' appetite for the Brazilian stock market.

In the first months of the year, Ibovespa was boosted by the strong inflow of international resources. In January 2026, the stock exchange reached a record value of R$26.31 billion in foreign capital inflows. Since then, B3 has been recording consecutive drops in this type of investment.

In May, foreign investors withdrew R$14.91 billion from the stock exchange. This is the largest monthly outflow of resources since January 2022, considering only operations in the secondary market and disregarding contributions in IPOs and follow-ons, according to a survey by Elos Ayta.

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Despite the negative result of the month, the accumulated flow of foreign investors in 2026 remains positive. Between January and May, the net balance reached R$41.63 billion without considering IPOs and follow-ons. Including share offerings, the accumulated net inflow rises to R$43.78 billion.

According to Gustavo Trotta, a specialist at Valor Investimentos, part of the resources returned to the United States, where companies linked to artificial intelligence continue to attract investors and sustain the performance of American indices. Nevertheless, Wall Street indices have renewed records in recent days.

Trotta states that the Brazilian stock market still has a cheap valuation compared to emerging peers, and high interest rates can still be attractive to foreign investors, but they have lost traction in the short term.

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For Beto Saadia, chief economist at Nomos, the main trigger for the change in investors' mood was the corporate earnings season in the United States. According to him, the surprisingly strong results of large technology companies have led to a global migration of resources to markets more exposed to the sector.

"We had one of the biggest profit revisions in recent years, especially in technology giants," he says.

In the assessment of Eduardo Levy, economist and CEO of LB Endow, the reduction in interest in the Brazilian market also reflects a natural movement towards profit making. After the appreciation of shares and the real against the dollar, according to the expert, many investors chose to rebalance their portfolios.

"Brazil stood out among emerging countries, but the fiscal situation is worrying and the geopolitical scenario has made investors more conservative", he says.

In addition, the expectation of a faster drop in interest rates has lost strength over the last few months. The persistence of inflation raised projections for the price index and reduced bets on a more intense cycle of monetary easing.

For Levy, this factor has a direct impact on economic activity. "Interest rates not falling as quickly as expected make everything more complicated for companies, the credit market and the economy as a whole", he assesses.

Elections on the radar
Despite the differences in diagnosis of foreign investor exit, experts converge on one point: the presidential elections should become the main factor of volatility for Brazilian markets in the coming months.

Trotta, from Valor Investimentos, states that the third quarter tends to concentrate the greatest moments of tension, with the release of electoral polls and the advancement of political debate.

According to him, the combination of elections, interest rate trajectory and fiscal situation should guide investors' behavior until the end of the year.

Levy, from LB Endow, also believes that the proximity of the presidential race tends to reduce risk appetite.

For the LB Endow economist, in scenarios of uncertainty, investors usually wait for clearer definitions before expanding their positions.

Saadia, chief economist at Nomos, adds that the market has started to consider the possibility of high interest rates for a longer period of time, which requires the repricing of several Brazilian assets.

Opportunities amid caution
Even in the face of a more challenging scenario, experts do not see a definitive loss of attractiveness for the Brazilian market. The consensus is that local shares continue to trade at prices considered attractive when compared to other emerging markets.

For Saadia, more defensive sectors or those with strong exposure to the international market can offer opportunities, such as energy, oil, mining and steel. Trotta highlights that Brazil still has the attraction of high interest rates, a factor that continues to attract the attention of foreign investors.

The predominant expectation is that volatility will remain high until there is greater clarity on the political and economic scenario. Historically, recalls Trotta, the fourth quarter usually sees market accommodation after the main electoral uncertainties are defined.

Until then, the Brazilian Stock Exchange should continue to share investors' attention with developed markets, especially the United States, where the race for artificial intelligence continues to concentrate a significant part of global capital flows.

By Lucinda Pinto: Revisions put interest at around 14% per year | MARKET CLOSURE

Source: CNN