The U.S. military operation in Venezuela has raised concerns around the world about violations of international law, but global financial markets, even stocks in neighboring Latin America’s largest economy, appear unaffected by the move. Earlier this month, the United States carried out a major attack on Venezuela during which Venezuelan President Nicolás Maduro and his wife were captured and extradited to New York, where they have since pleaded not guilty to drug trafficking charges. But investors who were close to the event didn’t seem fazed by it. On January 5, the first trading day after the attack, the main stock index of Brazil’s Bovespa, Latin America’s largest stock market, rose nearly 1%. The index only rose further, along with other major indexes, rising nearly 3% from that session to Friday’s close. Similarly, the iShares MSCI Brazil ETF (EWZ), a U.S. fund that tracks Brazilian stocks, has risen about 3% since the attack. .BVSP Line 2026-01-05 Bovespa Index since January 5 “In the case of Brazil, I don’t think this is a big issue. I don’t think there is a high risk of active intervention in Brazil,” Amr Abdel Khalek, emerging markets strategist at MRB Partners, told CNBC. “Inflation and interest rates, that’s really what the market is focused on,” he said. Card interest rate cut? After months of aggressive tightening by Brazil’s central bank last year, the country’s benchmark interest rate, known as the Selic rate, is at nearly 15%, the highest level in nearly 20 years. However, recent inflation data have reaffirmed hopes that monetary easing is on the horizon. Just last week, the Brazilian Institute of Geography and Statistics (IBGE) reported that annual inflation was slower than expected, at 4.26%. This is 0.57 percentage points lower than in 2024 and below the National Monetary Council’s inflation target of 4.5%. This is also the lowest annual cumulative figure since 2018. “Unemployment is at record levels and inflation is falling, so if you’re an ordinary Brazilian, you’re not completely satisfied. Of course you want to make more money, and you don’t think your life has really changed. But it’s better than it was a few years ago,” said Silvio Cacione, Eurasia Group’s director for Brazil. Indeed, he added that rate cuts could complicate an economy that “has major fiscal problems and remains deeply imbalanced.” “What keeps the economy going is high interest rates, because despite all the stimulus the government is giving[to the economy]it also brings foreign money into the country and helps control inflation,” Cascione explained. “Investors want stronger action to correct some of the imbalances, limit fiscal expansion, encourage more savings and investment, and grow the economy on a different basis.” Thornburgh Investment Management Pablo Echavarria, portfolio manager, expects that rate cuts are likely to begin sometime in the first half of 2026, but that the path to lower rates in the second half and beyond could be influenced by the outcome of the country’s general election in October. Echavarria said that if Brazilian President Luiz Inácio Lula da Silva is re-elected, the number of interest rate cuts will likely be reduced. But if he loses, he continued, his opponent could bring about “further fiscal consolidation,” which would ultimately mean a “more controlled” fiscal situation would allow the central bank to cut rates “a little more aggressively.” Echavarria also said further rate cuts could have a more than “pretty significant” impact on corporate earnings, noting that many domestic investors do not invest in equities because of the level of returns available in the bond market. BR1Y 1Y Line Brazilian 1-Year Bond Yield Over the Past Year “As long as interest rates fall, there should be more participation in the domestic stock market,” said the portfolio manager. “If Lula loses the election, markets will view that very positively.” Seeking more stability While the Venezuela attack may not have weighed on stock prices or swayed Brazilian voters’ decision in the election, it could still have regional implications, especially given that Lula has said he is working directly with other countries such as Mexico and Colombia to improve stability in Venezuela in the wake of the U.S. operation. So says Thea Jamison, managing director of Change Global. “This story of investment in Venezuela, foreign capital, openness and opportunity for the Venezuelan people will all be relevant heading into the Brazilian elections,” he told CNBC. “If Latin America can correct this political and economic misstep, there is great potential for[foreign direct investment]in the future.” Brazil is already receiving large amounts of foreign capital. Foreign direct investment from January to November last year was $84.1 billion, the highest in the country since 2014. Still, Jamison believes this level of investment is not where it should be, not only in Brazil but also in Latin America, noting that there has been a “significant divestment by Spanish companies over the past few decades”, particularly in both oil and banking. Oil is a top concern for Venezuela, which has the world’s largest oil reserves, and President Donald Trump has said oil companies will spend at least $100 billion to rebuild the country’s energy sector with U.S. protection. TS Lombard’s Elizabeth Johnson said there were concerns that if Venezuela ramped up oil production, it could pose a threat to Brazil, which is trying to attract more investment in its oil and gas industry by opening up its so-called equatorial rim off its northern coast. Nevertheless, the Managing Director still believes that the country is well-positioned for changes in this sector. “If you look across Latin America, there are a lot of countries with oil and gas wealth,” she said, citing Bolivia, Venezuela and Argentina as examples. “But while these countries…have had their ups and downs in how their governments manage their natural resources and oil assets, Brazil has had a steady opening up and very clear rules for its oil and gas sector, which makes it a really attractive market for international oil companies.” Even if Brazil’s energy sector has been negatively impacted as a result of Venezuela’s development, the country offers multiple products. The country is the largest exporter of beef, coffee, iron ore and soybeans. Given its diversified economy and Lula’s focus on attracting foreign investment, Mr Johnson sees the country as quite isolated. “Even if oil prices soar, Brazil’s economy will not collapse,” she said. ‘It’s not new’ Brazilian stocks may not have been fazed by the Venezuela attack, but that’s because the Trump administration had been putting pressure on Latin America long before the attack occurred, said Abdel Khalek of MRB Partners. “The important point here is that this is not new,” he said in an interview, stressing that the key risk in 2026 for Latin American countries, as well as emerging markets more broadly, is that the United States intervenes in domestic politics to bring these countries “more closely aligned” with national interests. Abdel-Khalek said that’s essentially what President Trump did when he imposed 50% tariffs on Brazilian goods last year. Seeing that the impact of events in Venezuela was overall quite limited, strategists asked the question: Is this an example of market complacency? “Maybe,” he answered. “But I look at it the other way and say, ‘We don’t know exactly.’ It’s hard to predict what the United States will do next.”
