Senior Credit Analyst - Emerging Markets, EM Spreads

Leandro Gubler

Senior Credit Analyst - Emerging Markets

EM Spreads

Credit

<ul>
<li>Credit improves, valuation caps upside: 2Q26 EBITDA rose 34% YoY, leverage fell to 1.32x, but 2035s at 138bps OAS leave little compensation beyond U.S. BBBs.</li>
<li>North America anchors earnings: 74% of segment EBITDA comes from North America, where strong backlog and Section 232 support offset a Brazil recovery still reliant on mix and productivity.</li>
<li>Neutral, with 2035s preferred: We favor the 5.750% 2035s for liquidity and structure, but would turn more constructive closer to 155bps OAS or on upside execution.</li>
</ul>


Credit improves, valuation caps upside: 2Q26 EBITDA rose 34% YoY, leverage fell to 1.32x, but 2035s at 138bps OAS leave little compensation beyond U.S. BBBs.
North America anchors earnings: 74% of segment EBITDA comes from North America, where strong backlog and Section 232 support offset a Brazil recovery still reliant on mix and productivity.
Neutral, with 2035s preferred: We favor the 5.750% 2035s for liquidity and structure, but would turn more constructive closer to 155bps OAS or on upside execution.


Gerdau 2Q26: North America Delivers, Brazil Starts to Turn

Technical Analyst, Vermilion Research

Joe Jasper

Technical Analyst

Technical and Quantitative Research

Vermilion Research

Vermilion’s objective is to deliver timely, actionable, and unique technical research to professional investors through the application of our various technical indicators.

Our research strategists seek to highlight securities which we believe are at major inflection points, based on our various technical and quantitative indicators, and offer asymmetric risk/return profiles. Our unique research methodology, centered on relative strength, enables our strategists to deliver superior investment recommendations.

Our process begins by organizing the universe of actively traded stocks into discrete sectors, then into industry groups. We then apply our technical and quantitative tools to identify developing price trends. Once attractive trends are identified within a selected sector or group, we screen for individual stocks which we believe offer the best risk/reward profile. We provide a historical perspective that often reveals, through our long-term charts, how price patterns often repeat themselves over time.

Technical Analysis

iShares MSCI ACWI ETF / Technical Analysis

<ul>
<li>With the MSCI ACWI (ACWI-US) approaching the top-end of our expected 2023 trading range at $93, we see limited upside from here, and we believe caution is warranted.</li>
<li>We want to remain overweight Europe and the UK, but we prefer to buy only on pullbacks.</li>
<li>The Hang Seng and MSCI China (MCHI-US) are both getting rejected at their important resistances discussed last week, and we would expect to see a basing process develop below resistance.</li>
</ul>


With the MSCI ACWI (ACWI-US) approaching the top-end of our expected 2023 trading range at $93, we see limited upside from here, and we believe caution is warranted.
We want to remain overweight Europe and the UK, but we prefer to buy only on pullbacks.
The Hang Seng and MSCI China (MCHI-US) are both getting rejected at their important resistances discussed last week, and we would expect to see a basing process develop below resistance.


Caution Warranted; ACWI-US At $93 Resistance; Buys in Communications, Staples, Materials, Financials

<ul>
<li>
Key Outcome: North America carried 1Q26 earnings, supporting 23.2% YoY adjusted EBITDA growth and reinforcing Gerdau’s status as a resilient BBB LatAm industrial credit.</li>
<li>
Risk/Volatility: Brazil remains the main earnings drag, with import pressure, cost headwinds, and only gradual margin recovery limiting the near term upside case.</li>
<li>
Valuation Driver: Neutral is maintained as Gerdau’s credit quality is largely priced in, with 2035s preferred for holding but not adding below 120 bps OAS.</li>
</ul>



Key Outcome: North America carried 1Q26 earnings, supporting 23.2% YoY adjusted EBITDA growth and reinforcing Gerdau’s status as a resilient BBB LatAm industrial credit.

Risk/Volatility: Brazil remains the main earnings drag, with import pressure, cost headwinds, and only gradual margin recovery limiting the near term upside case.

Valuation Driver: Neutral is maintained as Gerdau’s credit quality is largely priced in, with 2035s preferred for holding but not adding below 120 bps OAS.


Gerdau 1Q26: North America Carries Earnings, but Valuation Limits Upside

<ul>
<li>Geographic Divergence: North America remains the primary earnings driver (73% of EBITDA), providing a structural hedge against persistent import pressure and margin compression within Gerdau’s Brazilian operations.</li>
<li>Credit Stability: Conservative leverage (0.91x net) and robust liquidity through 2035 underpin a solid BBB profile, though high shareholder distributions limit the potential for further organic deleveraging.</li>
<li>Valuation Constraint: While fundamentally resilient, current tight spreads offer limited re-rating potential, making the intermediate 2035 notes the preferred entry point for balanced carry versus duration risk.</li>
</ul>


Geographic Divergence: North America remains the primary earnings driver (73% of EBITDA), providing a structural hedge against persistent import pressure and margin compression within Gerdau’s Brazilian operations.
Credit Stability: Conservative leverage (0.91x net) and robust liquidity through 2035 underpin a solid BBB profile, though high shareholder distributions limit the potential for further organic deleveraging.
Valuation Constraint: While fundamentally resilient, current tight spreads offer limited re-rating potential, making the intermediate 2035 notes the preferred entry point for balanced carry versus duration risk.


Gerdau 4Q25: North America Drives Earnings, Brazil Margins Remain Pressured

<ul>
<li>Persistent pricing pressure in Brazil limits margin recovery, while reduced future investments highlight challenges; stronger trade-defense measures will be needed to restore competitiveness.</li>
<li>North America remains Gerdau’s key earnings driver, supported by tariffs, healthy construction demand, and a resilient balance sheet that underpins credit strength.</li>
<li>We maintain Neutral, seeing limited spread-compression potential; we find greater value in the 2044s for their yield pickup and see overall valuations close to fair value across the curve.</li>
</ul>


Persistent pricing pressure in Brazil limits margin recovery, while reduced future investments highlight challenges; stronger trade-defense measures will be needed to restore competitiveness.
North America remains Gerdau’s key earnings driver, supported by tariffs, healthy construction demand, and a resilient balance sheet that underpins credit strength.
We maintain Neutral, seeing limited spread-compression potential; we find greater value in the 2044s for their yield pickup and see overall valuations close to fair value across the curve.


Gerdau 3Q25: North America Drives Earnings as Brazil Margins Compress

Brazil

Gerdau is the largest producer of long steel in the Americas and a leading global steel producer. The company manufactures a wide range of steel products, including long steel, specialty steel, flat steel, merchant bar, structural steel, piling, special bar quality, and rebar, primarily from recycled scrap metal. Gerdau is headquartered in Porto Alegre, Brazil, and was founded in 1901.

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Gerdau (GGB US)

Gerdau 2Q26: North America Delivers, Brazil Starts to Turn

Gerdau’s credit metrics are strengthening as North America drives earnings and Brazil begins to recover, but tight spreads keep us Neutral on the...

Leandro Gubler

Caution Warranted; ACWI-US At $93 Resistance; Buys in Communications, Staples, Materials, Financials

With the MSCI $ACWI approaching the top-end of our expected 2023 trading range at $93, we see limited upside from here and believe caution is...

Vermilion Research

Gerdau 1Q26: North America Carries Earnings, but Valuation Limits Upside

Gerdau’s credit story remains solid, but North America strength is already priced in, keeping the 2035s a hold rather than a compelling add.

Leandro Gubler

Gerdau 4Q25: North America Drives Earnings, Brazil Margins Remain Pressured

Gerdau offers a high-quality, resilient BBB credit story with dominant U.S. exposure, but fair valuations and Brazilian headwinds suggest the...

Leandro Gubler

Gerdau 3Q25: North America Drives Earnings as Brazil Margins Compress

Persistent pricing pressure in Brazil hampers margin recovery, while North America drives Gerdau's earnings; trade-defense measures are crucial...

Leandro Gubler

Price Gauge

52-week Range

Market Cap (USDm)

P/E

Dividend (Yield)

Gerdau 2Q26: North America Delivers, Brazil Starts to Turn

Gerdau’s credit metrics are strengthening as North America drives earnings and Brazil begins to recover, but tight spreads keep us Neutral on the...

Leandro Gubler

Caution Warranted; ACWI-US At $93 Resistance; Buys in Communications, Staples, Materials, Financials

With the MSCI $ACWI approaching the top-end of our expected 2023 trading range at $93, we see limited upside from here and believe caution is...

Vermilion Research

Gerdau 1Q26: North America Carries Earnings, but Valuation Limits Upside

Gerdau’s credit story remains solid, but North America strength is already priced in, keeping the 2035s a hold rather than a compelling add.

Leandro Gubler

Gerdau 4Q25: North America Drives Earnings, Brazil Margins Remain Pressured

Gerdau offers a high-quality, resilient BBB credit story with dominant U.S. exposure, but fair valuations and Brazilian headwinds suggest the...

Leandro Gubler

Gerdau 3Q25: North America Drives Earnings as Brazil Margins Compress

​Persistent pricing pressure in Brazil hampers margin recovery, while North America drives Gerdau's earnings; trade-defense measures are crucial...

Leandro Gubler

Persistent pricing pressure in Brazil hampers margin recovery, while North America drives Gerdau's earnings; trade-defense measures are crucial...