Why does Brazil have so few retail investors?

Financial markets are already calling 2019 “the year of stocks in Brazil.” So far, the Bovespa benchmark index is just short of a historical peak of 100,000 base points, while interest rates at all-time low levels give very little return for fixed-income investors. But will this scenario be enough to make Brazilians finally lose their fear of riskier investments?

Judging by 2018’s performance, optimism is growing. Not only did Ibovespa gain 15 percent over the year, making it the best performer in Latin American markets, but the number of active investors in B3, São Paulo’s stock exchange, jumped 37.1 percent from 2018 to 880,300 last month. Yet, the number of investors is still comparatively small for a country of 200 million people. In the U.S., a global reference for capital markets, more than half of the population has at least some money invested in the stock market.

The different path of these economies may explain why Brazilians are still shy when it comes to riskier investments. The country has staged a historical battle against hyperinflation and shocks caused by foreign exchange crises. Traditionally, raising interest rates has been Brazil’s go-to strategy to try to stabilize the economy. For example, in 1999, the Selic benchmark rate reached its historical peak of 45 percent per year, while the country sought out the International Monetary Fund for...