Brazil made a strong comeback in 2023 after three years of lackluster returns, and Latin America’s biggest market could see even more gains ahead. The Bovespa index , Brazil’s stock benchmark, rallied 22.3% this year. That’s its biggest annual increase since 2019 — when it gained 31.6%. The iShares MSCI Brazil ETF (EWZ) also skyrocketed 25%, its best one-year performance since 2016. Interest rate cuts, along with improving earnings, boosted the beleaguered market. Earlier this month, Brazil’s central bank lowered rates by 50 basis points to 11.75% and signaled more cuts are ahead. That momentum could carry over into the new year. “Earnings were bad [in Brazil]. Now, they’re kind of at a turning point,” said Daniel Gewehr, head of Brazil equity strategy at Itaú. At a valuation of around 8 times price to earnings, the Bovespa traded at a 1.5 standard deviation below its historical average valuation, he noted. He also sees earnings growing by about 13% in 2024. “You have double-digit earnings growth in a value country. To us, that’s attractive.” Gewehr sees Bovespa ending the new year at 145,000. That implies upside of 8% from Thursday’s close. He’s not the only one expecting another strong year from Brazil. JPMorgan strategist Emy Shayo Cherman sees Bovespa ending 2024 at 142,000. The strategist cited three reasons for her outlook: Lower rates: “Brazil usually doesn’t underperform during an easing cycle.” Low valuation: “Brazil is trading at around 8.5x 12m fwd PE. … This is lower than all major EMs with the exception of Turkey, Colombia and Hungary.” Political de-risking: “There is a tacit understating that there can’t be too many changes in the macro policy framework, at least for the foreseeable future.” Brazilian stocks have struggled in recent years as inflation, combined with fiscal and political uncertainty, pressured sentiment around the country. At one point in 2022, the consumer price index had risen more than 12% on a year over year basis, per FactSet. By November of this year, CPI eased to a 4.7% year-over-year increase. That, coupled with a major tax overhaul expected to bolster growth, have brightened the outlook around Brazil. “The reform is game-changing for Brazil and will simplify the country’s antiquated tax system and is arguably the most important structural reform passed in Brazil in 30 years,” wrote Elizabeth Johnson, an analyst at TS Lombard. “The reform will contribute to much-needed productivity gains and will have a positive impact on economic growth, saving companies an estimated BRL28bn per year in tax-preparation costs.” How to play it For U.S. investors looking to gain exposure to Brazilian equities, the easiest way to do it is through an ETF such as the EWZ. The iShares MSCI Brazil ETF has an expense ratio of 0.58%. Another fund that tracks Brazilian stocks is the Franklin FTSE Brazil ETF (FLBR) , which charges 0.19% of assets in fees. For investors who want to trade individual stocks, JPMorgan listed mining stock Vale as a top pick. Vale’s U.S.-listed shares are down 7% this year, but they’ve surged 18% in the fourth quarter. Itau’s Gewehr said he likes car rental company Localiza and Banco do Brasil , the country’s largest bank. Sao Paulo-listed Localiza shares are up nearly 20% for the year, while Banco do Brasil’s are up nearly 60%. U.S.-listed shares of both companies are traded over the counter. The Brazilian-listed shares are also part of the EWZ ETF. Gewehr also likes mall operator Allos. “I understand that sometimes international investors like malls less because of all the e-commerce services, but Brazil malls are a nicer consumer experience,” he said. “Sales in shopping malls are getting better. … We also have security issues, and malls are protected on that.” Sao Paulo-listed shares of Allos are up 56% for the year after three straight years of losses. The stock is not traded in the U.S., but it’s part of the FLBR ETF.