Brazilian stocks take off – but politics could lay them low again
Brazil’s Bovespa stockmarket index has just reached a new record peak, but investors should keep a close eye on the political backdrop.
Brazil's Bovespa index has just reached a new record peak, "driven by optimism over Brazil's emergence from a brutal recession", say Joe Leahy and Andrew Schipani in the Financial Times. GDP is expanding at an annual rate of just under 3%, according to Wells Fargo. With interest rates at a record low, and the labour market healing, consumers are growing more confident. Car sales jumped by 9.2% in 2017. Throw in "fair global winds", and corporate earnings are expected to rise sharply. On a cyclically adjusted price-earnings ratio of 12.8, according to StarCapital, Brazil is still one of the world's cheapest major markets.
That all sounds fine, says Capital Economics, but investors should keep a close eye on the political backdrop. President Michel Temer's pension reforms, which would begin to reduce unsustainably high state spending, appear to have ground to a halt. "Most of the heavy lifting will have to be done by the next government", which will be elected in October. It's too soon to gauge what will happen, but for now "populists (on both the left and the right) are leading the way". If trouble appears to be looming later this year, the rally could well come unstuck.
MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
-
Boost for over 100,000 families on Child Benefit as new HMRC payment system rolled outThousands of households will no longer have to pay the dreaded High Income Child Benefit Charge through self-assessment
-
Are you being haunted by the ghost of Christmas past? How festive cutbacks could boost your long-term wealthThe average family spends around £1,000 over the Christmas season. Here’s how much you could have gained if you had invested some of the money instead.
