While the U.S. military operation in Venezuela has sparked worldwide concerns over violations of international law, global financial markets appear unaffected by the developments, even stocks right next door in Latin America’s largest economy. Earlier this month, the United States carried out a large-scale attack on Venezuela, during which Venezuelan President Nicolás Maduro and his wife were captured and flown to New York, where they have since pleaded not guilty to drug trafficking charges. But investors close to the event didn’t seem shaken. On January 5, the first trading day after the attack, the main stock index of Latin America’s largest stock market – Brazil’s Bovespa – rose almost 1%. Along with other countries’ key indices, the index has only continued to rise, climbing nearly 3% between this session and Friday’s close. Similarly, the iShares MSCI Brazil ETF (EWZ) – a US fund that tracks Brazilian stocks – has gained about 3% since the attack. Line .BVSP 2026-01-05 Bovespa Index since January 5 “In the case of Brazil, I don’t see it being a big problem – I don’t see the high risk of aggressive intervention there,” Amr Abdel Khalek, emerging markets strategist at MRB Partners, told CNBC. “Inflation and interest rates are really what the market is focused on,” he said. Rate cuts in sight? After months of aggressive tightening by Brazil’s central bank last year, the country’s benchmark interest rate – known as the Selic rate – stood at 15%, its highest level in nearly two decades. Recent inflation data, however, has reaffirmed hopes of imminent monetary easing. Last week, the Brazilian Institute of Geography and Statistics (IBGE) announced that annual inflation had slowed more than expected, standing at 4.26%. This is 0.57 percentage points lower than in 2024 and below the 4.5% inflation target set by the National Monetary Board. It is also the lowest cumulative figure for the year since 2018. “Unemployment is at an all-time high and inflation is falling, so if you are an ordinary Brazilian, then you are not entirely satisfied – of course you would like to earn more money or you don’t think your life is really changing – but you are doing better than a few years ago,” said Silvio Cascione, Eurasia Group director for Brazil. Certainly, rate cuts could complicate an economy that is “still seriously unbalanced and facing a big fiscal problem,” he added. “What keeps the economy going is high interest rates, because that will also help you attract foreign money into the country and keep inflation under control, even with all the stimulus that is flooding (the economy) from the government,” Cascione continued. “Investors want to see stronger measures to correct some of these imbalances, to reduce fiscal expansion, to encourage more savings and investment, to get the economy growing on a different basis.” Pablo Echavarria, portfolio manager at Thornburg Investment Management, expects rate cuts to begin at some point in the first half of 2026, although the trajectory of cuts in the second half and beyond could be affected by the outcome of the country’s general election in October. The re-election of Brazilian President Luiz Inacio Lula da Silva would likely lead to fewer rate cuts, Echavarria said. But if he loses, his opponent could show “more fiscal prudence”, which means that ultimately, a “more controlled” budgetary situation would allow the central bank to reduce rates “a little more aggressively”, he added. Further rate cuts could have more than a “fairly significant” impact on corporate profits, Echavarria said. The portfolio manager pointed out that many domestic investors do not invest in stocks due to the level of returns they receive in the fixed income market. BR1Y 1Y line Brazilian one-year bond performance over the past year “To the extent that interest rates fall, you should see more domestic participation in equity markets,” he said. “If Lula loses the elections, the market will take it very positively.” Seeking more stability While the attack on Venezuela may not have put pressure on stocks or been a factor in influencing Brazilian voters’ decisions in the election, it could still have regional implications, especially as Lula has said he is working directly with other countries like Mexico and Colombia to improve stability in Venezuela following the U.S. operation. This is according to Thea Jamison, CEO of Change Global. “This narrative of investment in Venezuela, of foreign capital, of openness, of opportunity for the Venezuelan people, all of that is going to make sense before the Brazilian elections,” she told CNBC. “Latin America has enormous potential (for foreign direct investment) if it puts an end to this political and economic mismanagement.” Brazil has already received significant amounts of foreign capital. Between January and November of last year, foreign direct investment amounted to $84.1 billion, the highest the country has seen since 2014. Yet Jamison believes this level of investment in Brazil as well as Latin America is not where it should be, saying there has been “some divestment over the last two decades from Spanish companies”, particularly in the oil and banking sectors. Oil is a priority for Venezuela because it has the world’s largest proven reserves of crude oil, 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. Elizabeth Johnson of TS Lombard said concerns have been raised that if Venezuela starts producing more oil, it could pose a threat to Brazil in its efforts to attract more investment in its oil and gas industry by opening the so-called equatorial margin off its northern coast. Nevertheless, the director general still believes that the country is well positioned to deal with any volatility in this area. “When we look at Latin America, many countries have oil and gas wealth,” she said, citing Bolivia, Venezuela and Argentina as examples. “But these countries… have experienced ups and downs in the way their governments manage their natural resources and oil assets, while Brazil has seen steady openness and very clear rules regarding its oil and gas sector that make it a really attractive market for international oil companies.” Although Brazil’s energy sector has been affected by developments in Venezuela, it offers multiple products: the country is a leading exporter of beef, coffee, iron ore and soybeans. By having a diversified economy and taking into account Lula’s desire to attract foreign investment, Johnson sees the country as rather isolated. “If the price of oil falls, Brazil’s economy is not going to collapse,” she said. ‘Not new’ It’s also possible that Brazilian stocks were not dented by the attack on Venezuela because the Trump administration had been pressuring Latin America long before it happened, noted Abdel Khalek of MRB Partners. “The key point here is that this is not new,” he said in an interview, emphasizing that a major risk not only for Latin American countries but also for emerging markets more broadly in 2026 is U.S. intervention in the domestic politics of these countries to get them to “align more closely” with their national interests. Trump imposing a 50% tariff on Brazilian goods last year was essentially that, Abdel Khalek said. Considering that the impact of the event in Venezuela was quite limited overall, the strategist raised the question: is this an example of market complacency? “Maybe,” he replied. “But I would take another view and say, ‘We don’t really know exactly.’ It is difficult to predict what the United States will do next. »