After more than doubling in dollar terms in 2003, Brazilian equities have "run out of steam", says Frankfurter Allgemeine Zeitung. The Bovespa index slid by about 2% this year on concern that US interest rates could rise sooner than expected - dearer US money reduces the appeal of higher-yielding markets. But this should not be the main worry for investors. As JP Morgan points out, healthy trade balances - caused by the commodities upswing - have already made South America much less dependent on capital inflows than previously.
Of more concern is political instability. Since his election in late 2002, Brazil's left-wing President Lula has "thrilled worried investors" by adopting his predecessor's fiscal discipline, says Jonathan Wheatley in BusinessWeek. But now a campaign-finance scandal has tarnished his party's "squeaky-clean" image, forcing him into an alliance with "pork-barrel politicians" in another party. And rising public frustration over the lacklustre economy (it grew just 0.2% last year, but is forecast to recover by 3% in 2004) has also fuelled demands for Lula "to make a lurch towards populism". That would undermine stability and growth.
Subscribe to 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
-
Government launches full review of parental leave and pay – what could it mean for you?The government wants parental leave to be fairer - will its shake-up fix the widespread problem for families?
-
Nationwide: House prices see biggest monthly fall in over two yearsUK house prices dropped by 0.8% in June, according to Nationwide. We reveal the top-performing and worst-performing regions
