Neither China, Europe or the US: emerging markets are more attractive and Brazil is too cheap to ignore, says XP

Despite the Ibovespa rally in the first months of the year, XP remains optimistic about the equity market in Brazil, which it still considers to be quite discounted. The analysis is part of the Global Allocation Perspectives report, which takes a neutral view of the United States, Europe, China and Japan. Like Brazil, emerging markets are also considered attractive, according to the XP study.

The beginning of 2022 was marked by the conflict between Russia and Ukraine – which lasted for a longer period than initially planned – and by the beginning of the rise in interest rates in the United States, amid inflation that gained strength with the rise of commodity prices.

In addition, Covid-19 continued to bring new waves of concern, hitting China hard, which is facing the biggest outbreak of the disease since 2020. The scenario has also increased pressure on supply chains.

“Despite the still very uncertain international scenario, we reinforce the structural need for exposure to international investments”, points out a XP report, which defends regional diversification in the search for good opportunities.

In the study, the broker shares analysts’ preferred regions amid global uncertainties. Brazil and emerging markets stand out with an attractive vision for investments.

Where to invest for an efficient global portfolio

Source: XP Report – Global Allocation Prospects report

The visions above are based on a medium-term horizon, around the next 3 to 12 months. The notes (score) range from 0 to 1 point and are calculated according to indicators such as company profits, currencies, economic activity, in addition to the levels of financial conditions in each region.

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Brazil: Too Cheap to Ignore, Says XP

Despite concerns about the conflict in Ukraine and the risks of a tighter monetary policy amid the soaring prices of energy and food commodities, the Ibovespa rose 14% in the first quarter of 2022 in reais and 35% in dollars.

According to a report by XP, the Brazilian stock exchange benefited from factors such as the country’s exposure to commodities and banks, flow from other markets to Brazil and company stock values ​​still greatly discounted, despite the rally at the beginning of the year.

In a report, the broker considers that commodity sectors and banks rose by almost 20%, while other sectors and companies small caps were left behind.

Source: XP – Global Allocation Prospects report

For XP, the performance of the segments that did not follow the Ibovespa rally at the beginning of 2022 reinforces the thesis that there are many companies being traded at a discount on the Brazilian stock exchange and can represent opportunities especially for those who focus on the long term.

“We recognize that the domestic macroeconomic scenario is still challenging, with inflation and interest rates still rising, and a GDP growth projection of close to 0% for 2022”, warns the XP study. “For long-term investors, there are many good discounted opportunities that can be exploited by good active management”, he suggests.

portfolio diversification

Even in the face of an international scenario that is still quite uncertain, the Global Allocation Perspectives report signals the need for exposure to international investments.

“When we concentrate our portfolios on Brazilian assets, we are very exposed to local risks”, he explains. “In case of an increase in the perception of domestic risk, such as political or fiscal, all Brazilian assets tend to react negatively”, warns the XP report.

The brokerage also recalls that domestic events have little influence on international markets. In this way, the broker’s analysts point out, the best strategy to protect against volatility in Brazil is to diversify the portfolio in other regions and currencies.

Currently, the United States represents more than 60% of global stocks, followed by Japan, which makes up 5.4% of the global market, and the United Kingdom, which is equivalent to 3.7%. Brazil, in turn, represents less than 1% of all shares traded around the world.

emerging markets

XP analysts have a positive view of emerging markets, which, like Brazil, have grown driven by commodity prices and attractive prices from local companies.

The analysis, however, refers mainly to emerging Latin American countries, which are showing an upward movement in interest rates, with stock exchanges and foreign exchange recording the best global performances.

“Latin American countries started to raise interest rates as early as 2021, that is, the attractiveness may continue to increase”, signals XP. “For emerging Europe, we have a similar view to Europe in general, with a slightly more negative perspective due to the more direct exposure to the conflict in Ukraine”, points out the document.


The uncertain scenario in Europe – especially in relation to the geopolitical crisis in Ukraine that has not yet been resolved – motivated a neutral position by XP for the region, but with a negative bias.

The Eurozone started the year with a positive outlook amid the acceleration of the global economic recovery. Before the war in Ukraine, economists were projecting solid economic growth of nearly 4% in 2022. In addition, the pandemic crisis and a change in leadership in Germany – once a major advocate of austere spending measures – have led to a slackening in the economy. fiscal policy in the region.

After February, when the war between Russia and Ukraine materialized, prospects for Europe worsened given the region’s greater exposure to conflict than other markets.

“The huge energy dependence of European countries on Russia and the impossibility of a solution in the short term led to record inflation since the Eurozone was created”, details the XP report.

Thus, XP analysts assess that, with prices pressured and an economy more fragile than the United States, the European Central Bank has signaled more caution to raise interest rates than the North Americans.


Before the pandemic, the United States had one of the best decade of returns in its history – between 2009 and 2019, the S&P 500 index accumulated a total gain of 257% in dollars. Not even the pandemic stopped the North American market, which continued to benefit from the growth of big techs and has delivered a 109% return since March 2020.

According to XP analysts, the strong appreciation raised doubts about the maintenance of performance throughout 2022.

“In the long term, there is no doubt that the United States remains an important market for a Brazilian investor to have exposure to”, suggests the broker’s study. “However, in a shorter period of time, expectations were adjusted downwards, with more moderate earnings growth estimates for companies”, he points out.

Still, XP predicts 16% growth in US companies this year – the highest among major global regions.

Given this, the broker has a neutral view of the country and gives preference to assets linked to segments that perform better in times of higher inflation, such as energy, the financial sector and health.

China and Japan

China has had the last year and a half quite turbulent, with investors worried about the regulation of various sectors, fears of delisting Chinese companies from the New York stock exchanges, the housing crisis, the return of Covid-19 and the slowdown in economic growth.

The difficulties of the period led the Chinese equity market to have the worst performance among the main global exchanges. Since the beginning of 2021, the MSCI China index has dropped -22% in dollars.

For XP, the Asian country – considered the engine of global growth – remains attractive for the long term, but in the short term it still requires caution from investors.

“In the short term we still see risks”, points out the broker’s report. “Although the authorities have brought relief to investors, more concrete policies to address their concerns still need to be made”, she points out.

In the case of Japan, concerns are about problems in global supply chains generated by the war in Ukraine and the lockdowns in China.

“Despite the low exposure to Russia, inflation is a challenge given the importance of the industrial sector, which should suffer pressure from the increase in commodity prices”, projects the report. “We see few catalysts in this region and we prefer exposure to other markets with better growth prospects”, he concludes.

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