Morgan Stanley reduces Brazil equity weight due to fiscal and election risks

Morgan Stanley has adjusted its stance on Brazilian equities, moving its recommendation from ‘overweight’ to ‘equal-weight’. This shift reflects growing concerns regarding fiscal risks and political uncertainty surrounding upcoming elections.

The bank is adopting a more defensive posture, reducing exposure to companies heavily dependent on the domestic economy. Notable changes include the removal of Banco do Brasil (BBAS3) and Copel (CPLE3) from its portfolio, as well as reduced exposure to B3 (B3SA3) and XP Inc. (XPBR31).

To hedge against domestic volatility, the institution is increasing its position in Suzano (SUZB3), favoring companies with dollar-denominated revenues and low production costs. Other maintained overweight positions include Petrobras, Embraer, JBS, and Nu, as the bank seeks to balance domestic risk with commodities and export-oriented sectors.