Morgan Stanley anticipates a cautious yet selective rebound in Latin America's retail and eCommerce markets in 2026, motivated by expected interest rate cuts in Brazil that could provide some stimulus. Despite this monetary easing, the bank predicts that weak consumption dynamics will limit a broad-based recovery across the retail sector.
The investment firm projects slowed real consumption growth in Brazil to below 1%, influenced by persistently high interest rates and a decelerating wage mass, which both suppress consumer demand.
Against this challenging backdrop, Morgan Stanley adopts an investment approach that favors companies with solid individual prospects over reliance on overarching consumption themes. The bank retained its Overweight ratings on MercadoLibre, Lojas Renner, and Vivara, upgraded C&A Modas from Equal Weight to Overweight status, but downgraded Azzas 2154 to Equal Weight and GPA (CBD) to Underweight, while reaffirming Underweight assessments for Magazine Luiza and Grupo Casas Bahia.
Focusing on Brazil’s retail sector, the bank acknowledges that decreasing interest rates are expected to provide some support. However, it cautions that this easing is insufficient to elevate the entire sector. Instead, the firm underscores the presence of "pockets of growth" especially within eCommerce and shopping malls, areas where multiple companies have opportunities to succeed.
Specifically, the bank projects 16% year-on-year growth in eCommerce sales in U.S. dollar terms for 2026, which would expand the market’s value beyond $230 billion and lift online penetration to 15.4% of retail volume. This growth is anticipated to be supported by ongoing improvements in product selection, logistics capabilities, and technological infrastructure.
MercadoLibre remains Morgan Stanley’s top pick in the eCommerce arena, credited to its extensive scale, dense logistics network, and integrated fintech offerings. The bank forecasts a renewed surge in MercadoLibre’s profitability with an expected 43% growth in EBIT for 2026, largely fueled by advertising and credit operations, notwithstanding increased logistics expenses.
In the apparel segment, Morgan Stanley highlights robust shopping mall traffic in both Brazil and Mexico, alongside a fragmented market landscape that provides opportunities for companies to increase market share. Reflecting this positive outlook, the bank upgraded C&A Modas, noting enhanced execution and attractive valuation, while maintaining overweight ratings on Lojas Renner and Vivara.
Conversely, Morgan Stanley downgraded Azzas 2154, flagging ongoing operational hurdles and uncertain integration benefits post-acquisition. The downgrade of GPA to underweight relates to concerns over the company’s leverage profile and financial contingencies, which are expected to continue restraining net income.
The bank also identifies potential upside from companies with exposure to Argentina, such as MercadoLibre and Cencosud, if macroeconomic conditions improve following the October 2025 midterm elections. Nonetheless, Morgan Stanley emphasizes that its core outlook favors selective growth opportunities rather than a widespread recovery across Latin America’s retail environment.
Morgan Stanley forecasts selective growth in Latin American retail and eCommerce sectors in 2026, driven partly by upcoming interest rate reductions in Brazil. However, overall consumption remains subdued, constraining broad recovery. The firm emphasizes stock-specific opportunities over general consumption trends, maintaining overweight ratings on MercadoLibre, Lojas Renner, and Vivara, upgrading C&A Modas, while downgrading GPA and Azzas 2154 due to operational and financial concerns.
Key Points
- Selective growth expected in Latin American retail and eCommerce in 2026, supported by Brazil’s anticipated rate cuts.
- Morgan Stanley upgrades C&A Modas to overweight and maintains strong positions on MercadoLibre, Lojas Renner, and Vivara.
- eCommerce projected to grow 16% year-on-year in 2026, surpassing $230 billion market size in U.S. dollars, with increased online retail penetration.
- Concerns remain over weak consumption growth under 1% real in Brazil due to high rates and slowing wage mass, limiting broad retail recovery.
Risks
- Continued high interest rates and decelerating wage mass in Brazil restrain consumer spending, impacting retail sales growth.
- Operational challenges and unclear benefits from integration lead to downgraded outlook for companies like Azzas 2154.
- Financial pressures from leverage and contingencies weigh on GPA’s net income, contributing to a negative forecast.