Small Cap Bargains in Brazil

Core Thesis - Brazilian stocks, particularly small caps, are expected to experience significant upside as the market transitions from fixed income to equities, driven by a favorable economic environment and declining interest rates [3][8][17] Investment Performance - The Brazilian ETF EWZ has increased by 54% over the past year, indicating strong market performance [1] - Duquesne Family Office acquired approximately 3.5 million shares of the iShares MSCI Brazil ETF, valued at around $112 million, signaling confidence from prominent investors [2] Market Conditions - Brazilian investors currently have only 9% exposure to stocks, with a staggering 91% in fixed income, due to historical underperformance of stocks and high inflation rates [7] - The central bank's interest rate is expected to begin easing in March, making stocks more attractive to local investors [8] Earnings Growth Potential - Brazilian companies are projected to see earnings per share (EPS) growth of 11% annually through 2035, which could lead to a re-rating of Brazilian valuations [13] Small Cap Opportunities - The iShares small cap ETF EWZS, which includes 70 smaller Brazilian companies, is trading at low valuations with an average P/E ratio of 9 and a price/book ratio of 1.1, compared to higher ratios in U.S. small cap indices [15] - Small caps are positioned to benefit from the economic rebound in Brazil, making them an attractive investment option [16][17]