It’s time for investors to head back to Brazil

Brazil remains one of the world’s cheapest stockmarkets, and is one of the few emerging markets that would be shielded from Trump-induced turbulence.

Andrew Van Sickle
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published

Brazil's stockmarket jumped by 40% in 2016; this year, it has already gained 10%. The economy is gradually rebounding from a deep recession, while the impeachment of the former president, Dilma Rousseff, cleared the way for a business-friendly administration led by Michael Temer.

All very well, Albert Ramos of Goldman Sachs told the Financial Times, but the market seems to be pricing in a V-shaped recovery that won't happen. "All sectors are overstretched and need to de-lever." The International Monetary Fund is pencilling in growth of just 0.5% in 2017.

But that may be a bit pessimistic, according to Capital Economics. Investment has dropped so far amid the political crisis and fall in commodity prices that it can hardly decline any more. That removes a big drag on output. The outlook for exports is brighter now that commodities have recovered. Meanwhile, interest rates have been coming down from a ten-year high since October, as the central bank has brought inflation under control.

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Looser monetary policy is generally good news for stocks, and Brazil is no exception. In every past easing cycle there has been an equity rally of at least 20%, according to Luis Oganes of JPMorgan. The prospect of liquidity entering the economy and market is making up for relatively lacklustre GDP growth. Brazil is also one of the few emerging markets that would be shielded from Trump-induced turbulence in the global economy thanks to its large domestic market, says Goldman Sachs.

The government's gradual progress with structural reforms, notably a public spending cap designed to last 20 years, has also encouraged investors. Brazil remains one of the world's cheapest stockmarkets, trading on a cyclically adjusted p/e of ten. In short, it does not seem too late to join the party.

Andrew Van Sickle
Andrew Van Sickle

Andrew is the editor of MoneyWeek magazine. He grew up in Vienna and studied at the University of St Andrews, where he gained a first-class MA in geography & international relations.

After graduating he began to contribute to the foreign page of The Week and soon afterwards joined MoneyWeek at its inception in October 2000. He helped Merryn Somerset Webb establish it as Britain’s best-selling financial magazine, contributing to every section of the publication and specialising in macroeconomics and stockmarkets, before going part-time.

His freelance projects have included a 2009 relaunch of The Pharma Letter, where he covered corporate news and political developments in the German pharmaceuticals market for two years, and a multiyear stint as deputy editor of the Barclays account at Redwood, a marketing agency.

Andrew has been editing MoneyWeek since 2018, and continues to specialise in investment and news in German-speaking countries owing to his fluent command of the language.

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