Brazil gets the benefit of the doubt

Investors appear to have become immune to Brazil's dysfunctional politics.

853-temer-634

Markets are unfazed by charges against Temer

These are "uncharted waters" for Latin America's biggest economy, says the Financial Times. This is the first time a sitting president has faced criminal charges. President Michel Temer is alleged to have taken bribes from a former CEO of a large meat-packing company, JBS.

The stockmarket slipped by 10% in mid-may when the scandal surfaced, but it has since found its feet; what's more, it is still up by 75% since January 2016. Markets apparently "no longer care about the deterioration of the country's politics into a B-grade television crime show", as the FT's Joseph Leahy puts it. That's because there is unlikely to be enough support in Congress for impeaching Temer, and he has no obvious successor. His economic team, notably the central-bank governor and finance minister, is regarded as excellent.

There should therefore still be scope for further structural reform, a process begun with a constitutional amendment to keep a lid on public spending and hence public debt accumulation. This imbroglio also proves that Brazil's inspector general, judiciary and police are free from presidential meddling, Bryan Carter of BNP Paribas Investment Partners told Forbes.com. "What other emerging market can boast such strong institutions?"

Of course, a positive economic backdrop makes it easier to be sanguine about a market's prospects, and here Brazil has an encouraging story to tell. It is bouncing back from a nasty recession, while inflation at a decade low is facilitating interest-rate cuts. Foreign direct investment is pouring in, covering the small current-account deficit. Reasonable valuations help too. The market's cyclically adjusted price-earnings ratio of ten is still one of the lowest of all major markets.

Recommended

Emerging markets fall behind their developed-world counterparts
Emerging markets

Emerging markets fall behind their developed-world counterparts

While developed-world markets look forward to a recovery, emerging market stocks have tumbled as foreign investors pull out cash.
16 Apr 2021
Four of the best investment trusts for investing in emerging markets
Investment trusts

Four of the best investment trusts for investing in emerging markets

Investors need to tread very carefully in this risky sector. Here are the best ways to approach it
22 Mar 2021
Storm brews in emerging markets as investors pull cash out
Emerging markets

Storm brews in emerging markets as investors pull cash out

Foreign investors have begun to pull cash out of emerging markets as they begin to look less attractive when compared to the rising return from holdin…
12 Mar 2021
I wish I knew what an emerging market was, but I’m too embarrassed to ask
Too embarrassed to ask

I wish I knew what an emerging market was, but I’m too embarrassed to ask

This week's “too embarrassed to ask” explains what emerging markets are, and why you might want to invest in them.
9 Sep 2020

Most Popular

The bitcoin bubble will burst: here’s how to play it
Bitcoin

The bitcoin bubble will burst: here’s how to play it

The cryptocurrency’s price has soared far beyond its fundamentals, says Matthew Partridge. Here, he looks at how to short bitcoin.
12 Apr 2021
What does the Coinbase listing mean for bitcoin and other cryptocurrencies?
Bitcoin

What does the Coinbase listing mean for bitcoin and other cryptocurrencies?

As the bitcoin price hit new highs, the world's biggest cryptocurrency exchange, Coinbase, listed on the stockmarket. John Stepek looks at what that m…
15 Apr 2021
Lab-grown meat: the new agricultural revolution
Soft commodities

Lab-grown meat: the new agricultural revolution

Vegan alternatives are taking off, but the future of food technology lies in lab-grown meat – cultivating steaks and burgers from animal cells, says A…
16 Apr 2021