Foreign investors flee Brazil as corporate defaults reach two-decade high

Brazil entered the week with a question that foreign investors have been asking with growing frequency in international bank roadshows: *"What's cautelar?"* The proliferation of court-ordered creditor protection filings — involving names such as Braskem, Oncoclínicas, Aeris and, most recently, iconic retailer Casas Bahia, which reported R$17.3 billion in debt when filing for judicial reorganization — has become the Brazilian market's most inconvenient calling card. A banking executive who recently took part in roadshows told Brazil Journal he "had never seen so much pushback in 20 years in the market," with investors still bruised by surprises like Raízen, which moved swiftly from investment grade to an out-of-court restructuring. This deteriorated credit backdrop is the most revealing lens through which to read this week's news flow.

Citi captured the problem with surgical precision in a report released over the weekend: delinquency in Brazil is widespread and the deterioration cycle is far from over. Credit-to-GDP has jumped from 46% in 2019 to 56% this year, and M2 has reached 58% of GDP, near historical highs — but this liquidity is not being used to repair balance sheets. It is sustaining consumption and honoring existing obligations, which means household budgets are becoming progressively more strained. Delinquency ratios over 90 days are showing up in personal loans, revolving credit cards, and installment plans. Retail is already feeling it: the sector eliminated 45,900 formal jobs in the first half, the largest cut for the period since the pandemic, in stark contrast with the 921,000 jobs created by the broader market. Casas Bahia's judicial reorganization filing has become electoral ammunition for the opposition, with Flávio Bolsonaro and Tarcísio de Freitas attributing the retailer's crisis to the impact of high interest rates on companies and households — an argument that, regardless of its political weight, has an economic core that is difficult to refute.

Fiscal urgency took on more concrete numbers in this week's debate. Barclays, through Roberto Secemski, highlighted that nearly R$1.8 trillion in public debt maturing in 2027, combined with the increasingly Selic-linked structure of the debt stock and real interest rates among the highest in the world, creates pressure that no government elected in October will be able to ignore. Economists consulted by Valor Econômico are unequivocal: the adjustment will have to go through spending restraint, and discussion around de-indexing pension adjustments from the minimum wage valorization policy is already circulating among members of the economic team as an agenda item for a potential next administration. James Oliveira, CIO at Vinland Capital, is taking a tactical stance amid a scenario with few strong convictions, but argues that a well-executed fiscal adjustment pays for itself quickly through lower interest rates — the same logic the market wants to see confirmed in numbers, not promises.

Against this backdrop, foreign capital flows tell a revealing story. While emerging markets received inflows for six consecutive weeks — with net inflows of US$1.2 billion between August 13 and 19 alone, according to JP Morgan — B3 experienced a *heavy selloff*, losing US$1.6 billion in the week of August 12–18, following US$2.3 billion in outflows the previous week, the largest weekly outflow since March 2020. Over four weeks, redemptions totaled US$4.3 billion. Discounted valuations of Brazilian companies have not been enough to attract buyers amid electoral uncertainty and the weight of high interest rates on corporate balance sheets. The Ibovespa closed last week up 2.11% at 170,448 points, breaking a two-week losing streak, and the dollar retreated 1% to R$5.142, supported by the external environment and the phone call between Lula and Trump. But the index's technical structure still requires breaking the 174,135 to 180,680 range before one can talk about a consistent trend reversal.

Friday's (21) call between the two presidents cracked open a window in bilateral trade relations. Lula contested the most recent U.S. tariff package, which cites the Pix system, Brazilian ethanol, and imports linked to forced labor as justifications, calling them "unfounded." The practical outcome was the scheduling of a videoconference between Minister Márcio Elias and U.S. Trade Representative Jamieson Greer for this week — a first negotiated step, but still far from any resolution. Canada, meanwhile, sees growing urgency in an agreement with Mercosur as a response to its trade conflict with Washington, according to Valor Econômico, which adds a layer of geopolitical pressure favorable to the South American bloc.

In the energy sector, Brazil is navigating a structural contradiction that ONS had to manage on an emergency basis: there is excess renewable generation at the same time that energy demand is growing 6.3% in August year-on-year — an upward revision from the 5.6% forecast the previous week. The operator triggered on Sunday (23) the emergency curtailment mechanism for distributed generation for the second time in 2026 to prevent grid overload. It is this same combination of renewable oversupply and paralysis of new wind investments that led Aeris, a wind blade manufacturer, to file for a precautionary creditor protection measure with R$1.95 billion in debt, while the sector watches turbine factory closures by GE Vernova and Siemens Gamesa and the absence of new orders at WEG's wind turbine unit.

El Niño adds inflationary pressure to the picture. Economists are already revising their inflation models in light of climate effects, while severe drought in the North is reducing navigability on Amazonian rivers and shipping companies are applying cargo surcharges — a logistics cost that transmits directly to price levels. Luiz Noto, CEO of Cofco's Brazilian division, forecasts a decline in the 2026/2027 soybean harvest, citing El Niño, reduced planted area, and credit restrictions to producers. Farmland is already coming to market at discounts of up to 40%, according to fund managers heard by Brazil Journal, as indebted producers liquidate assets — a sign of deep financial stress in a sector that has been Brazil's growth engine for more than a decade.

For the week ahead, the focal points are precise: the formal announcement of the end of the tax on international purchases up to US$50, promised by Lula for Wednesday (26), will be read as an electoral gesture more than as structured trade policy; the CVM board meeting on the Oncoclínicas tender offer — with the arbitration request filed by U.S. asset manager Centaurus Capital against Latache contesting the same ground — could set a relevant precedent for Brazilian capital markets governance; and the August IPCA-15, to be released over the course of the week, will be the first concrete data point to gauge how much El Niño has already passed through to consumer prices. The scenario remains that of a country that is growing, consuming, and employing — but with fissures in private credit that widen every week without clear signaling of fiscal consolidation.

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**Braskem (NYSE: BAK / B3: BRKM5)** — The petrochemical company acknowledged to the market that it is evaluating protective measures and intensifying negotiations with creditors, without yet confirming an out-of-court restructuring; the company responded to formal inquiries from CVM and B3. International investors on roadshows have cited Braskem as an example of the deterioration in the Brazilian *high yield* market.

**Oncoclínicas (B3: ONCO3)** — The Josephina 3 fund, from U.S. asset manager Centaurus Capital, filed an arbitration request with B3's chamber to block a public share offering exceeding R$6 billion, on the eve of the CVM board meeting that will rule on the case this Monday (25). The company, which has been in out-of-court restructuring since July, also completed the sale of its stake in a Saudi joint venture for R$33.3 million as part of its divestment process.

**Afya (Nasdaq: AFYA) / Yduqs (B3: YDUQ3)** — German group Bertelsmann, Afya's controlling shareholder, is in advanced negotiations with Yduqs on a merger; representatives of the two groups met in São Paulo last week, and a second meeting is scheduled for September, according to Valor Econômico. A potential combination would create one of the largest medical education groups in the southern hemisphere.