Quality in Emerging Markets: Brasil Bolsa Balcão

With global equities pricing in considerable future growth, the diversifying power of emerging markets is in focus. But investors can reasonably wonder how to approach the region while retaining the benefits of established, proven companies and without making bets on economic growth in volatile parts of the world. Our solution is to invest in emerging markets with a quality equity income approach. We aim to harness the potential of the region via companies with sustained competitive advantages expressed both in growth and in a dividend stream which we aim to be sustainable and potentially growing.

Of all the sources of competitive advantage we look at, some of the strongest are found in businesses that are structurally embedded and cannot be replaced. One such company is B3 – Brasil Bolsa Balcão, Brazil’s sole stock exchange which is composed of a comprehensive infrastructure that combines multiple services and data expertise.

B3 is the integration of 3 major financial entities: Bovespa (the Sao Paulo Stock Exchange), BM&F (the Brazilian Mercantile and Futures Exchange) and Cetip (a leading clearing house). The union has consolidated B3’s equities and derivatives market, and expanded services into clearing, settlement and data.

This vertical integration as an exchange, clearinghouse, and depository, is the core attributes which make B3 irreplicable. It is the first and only entity to combine all three structures under one roof; trades, OTC registration, clearing transactions, and securities holding in Brazil all flow through its ecosystem.

How B3 has been able to innovate

Along with its regional dominance, B3 (and the three business that preceded it) has pioneered financial innovation in Brazil. For instance, as the first structured public auction system for securities, the establishment of Bovespa in 1890 marked a significant step in Brazil’s financial landscape. Later the implementation of automated systems for real-time information flows by the company was a crucial step in modernizing the sector. 

Following this trend, the contemporary B3 exchange has modernised the domestic market, introducing products such as bitcoin futures and weekly options to boost liquidity, and expanding digitalised services.

Segments & Strategy

Today, the exchange operates across four reporting segments; Markets, Capital Markets Solutions, Data Analytics Solutions, Technology & Platforms which support a diversified business across both recurring and pro-cyclical revenue streams.

Markets

The Markets segment acts as the trading, clearing, and settlement venue for equities, equity derivatives, financial derivatives, and commodities. Brazil's unique model of direct retail access to the exchange, combined with a highly liquid environment, has facilitated rapid adoption of tradable products spanning equities, commodities, and crypto-assets. B3 in 2025 was the largest derivatives exchange by volume, having overtaken India's NSE - a position won by smaller, high-frequency contracts among retail participants. That B3 competes and wins at a global level, independent of its domestic monopoly status, underscores the underlying quality of the business.

Revenue streams that offset cyclicality

Moreover, as the sole mandated trade repository in Brazil (previously CETIP), registering and clearing fixed income securities and OTC derivatives, B3 earns a fee on every OTC transaction in Brazil regardless of market conditions. This is a structurally guaranteed revenue that offsets cyclical weakness in exchange-traded volumes and reinforces a dominant regulatory moat.
In line with its diversification strategy, B3 has made significant investments into its data analytics and technology segment which has become its fastest growing segment up 23% in Q1 of 2025.

Growing Data Analytics Solutions

Acquisitions of Neoway and Neurotech now form part of Trillia, B3’s data analytics area, which enjoys unique access to proprietary, large-scale data and has become the company’s fastest growing business segment. B3 also acquired a 62% stake in Shipay, deepening the company’s presence in the payments ecosystem.

Together, these segments position B3 as the essential infrastructural layer of Brazil's entire financial system.

Who are B3’s competitors?

B3 is not without competitors, but none offering the same breadth of service that the company has achieved. American Trading Group, a base exchange backed by Abu Dhabi’s sovereign wealth fund, has attempted to launch twice but continues to face delays. Likewise, CDS BR has emerged as a competitor in depository and trade repository space. However, these entrants are set to compete within specific segments of B3’s business, not its entire model.

In data analytics, the domestic fintech sector has given rise to indirect competition, while in digital platforms banks are increasingly offering new payment services. In response, B3 has formed Trillia (data analytics) and made an acquisition in Shipay (payments platform). Shipay alone reports handling around 7 million transactions per month, facilitating connections between consumers and merchants across various digital payment methods. This, in addition to product diversification, demonstrates B3’s ability to scale operations to meet competition, on top of maintaining its core operations.

Market and Growth Opportunities 

B3’s growth strategy, diversifying through data analytics and new tradable products, highlights how advanced Brazil’s financial services infrastructure is, and consequently the market opportunities that it affords. B3’s expansion into sophisticated areas such as crypto, volatility derivatives and prediction markets, reflects the maturity of its core business and existing products, providing headroom to explore more innovative offerings which simultaneously reduce revenue cyclicality.

Key to B3’s success is a large and growing retail base in Brazil, their direct access to the exchange, and regulatory developments which have facilitated financial inclusion. Financial inclusion through digital payment systems such as Pix (operated by the central bank) has grown the addressable retail market, with Pix bringing around 71.5 million previously unbanked Brazilians into the financial system. The development of financial infrastructure such as this has been actively driven by the central bank, especially in open finance, digital payment systems, fintech licensing, and DREX (Central Bank Digital Currency).

As mentioned, B3 also benefits from the financial registration of every new security. Subsequently, the more comprehensive the domestic infrastructure becomes and the larger the addressable market, the more transactions flow through B3’s system. 

Changing Face of Brazil’s Macro 

A company-focused approach reveals B3’s competitive advantages and business value, but it is also useful to recognize the changes in Brazil’s macro environment.
While inflation has picked up again in recent months, the overall downward path was sufficient to allow the beginning of (albeit cautious) Selic rate cuts, with three 25bp cuts to reach 14.25% as of June 2026. Further cuts, if delivered, should stimulate equity trading activity and valuation rerating, creating tailwinds for B3’s Listed segment. The country’s free capital flow system is also attractive for foreign capital which strengthens the equity trading environment, and which accounts for 62% of B3’s cash equity trading in 2025.

The upcoming election is widely anticipated by markets, with the candidacy of Flávio Bolsonaro a positive signal for incoming fiscal constraints as he mandates to address the country’s fiscal deficit. A pro-market shift could lead to a rally in equities trading and even under alternative candidates with less attractive fiscal reforms, Brazil’s fixed income resilience should offset a bearish market.

Beyond these near-term factors, Brazil is undergoing structural shifts in trade and industrial policy in the pursuit of global leadership. Already a Mercosur member, it is a major regional player and is now pursuing ASEAN membership following its commitment to increase exports to South-east Asia.

Domestically, the promotion of strategic industries (energy, critical mineral mining, agribusiness) has also attracted closer partnerships for instance the critical mineral framework with India and oil-exports to China, which should solidify the country’s position in the global value chain while supporting domestic development. In energy, Brazil boasts one of the cleanest mixes in the world, with renewables accounting for almost 90% of electricity generation. 

Wind and hydropower alone raised more than $164 billion in green and sustainable bonds between 2014 and 2024, supporting local capital markets. B3 itself has taken steps to support the country’s decarbonization targets through dedicated ESG listed equities, which includes a Carbon Efficient Index, and OTC products such as decarbonization credits.

Why do we invest in B3? 

B3 not only holds a virtual monopoly, carrying the network effects which block effective disruptors in the segment, but is a vertically integrated business which has also diversified along product lines. This diversification creates a buffer to earnings volatility during weakness in equity markets and consequently supports our conviction on the durability of its long-term growth. The result of B3’s business model that we have explored is a company with high EBITDA margins and sustained returns on capital, supported by low structural costs. 

B3 shows that such quality companies can be found in emerging markets – and not in the areas dominated by low-value manufacturing or commodities which emerging markets investing was once associated. 

To find out how we uncover other companies with quality characteristics for our portfolio, discover our quality equity income approach.

Risk: The Guinness Emerging Markets Equity Income Fund is an equity fund. Investors should be willing and able to assume the risks of equity investing. The value of an investment and the income from it can fall as well as rise as a result of market and currency movement; you may not get back the amount originally invested. The Funds are actively managed with the MSCI Emerging Markets Index used as a comparator benchmark only.

Disclaimer: This insight may provide information about Fund portfolios, including recent activity and performance and may contains facts relating to equity markets and our own interpretation. Any investment decision should take account of the subjectivity of the comments contained in this insight. This insight is provided for information only and all the information contained in it is believed to be reliable but may be inaccurate or incomplete; any opinions stated are honestly held at the time of writing but are not guaranteed. The contents of this insight should not therefore be relied upon. It should not be taken as a recommendation to make an investment in the Funds or to buy or sell individual securities, nor does it constitute an offer for sale.