Brazil gets the benefit of the doubt

published 14 July 2017

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?"

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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.

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.