July 17, 2019

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Brazil is Back!

July 17, 2019




According to Wall Street, after a long lapse, Brazil is in a good position., The Brazilian stock exchange index is the best index in emerging markets, better than China and surpassing even the US market. The main reason for Brazil's return is the approval of the once-unpopular presidential pension reform bill. This is currently supported by a large portion of the population that voted for the new president, Jair Bolsonaro, who implemented a structural reform agenda.


According to Forbes, last month, the iShares MSCI Brazil (EWZ) index fund gained 7.5% versus only 2.24% of the MSCI Emerging Markets Index (MSCI) benchmark. That is, if you had bet $ 10,000 on the weekend of July 4 in the Brazilian ETF, you would have an additional $ 3.7 thousand in your annual income.


BlackRock, the world's largest asset management company, recommended investors invest in Brazil, and said the country is better off than any other in Asia due to the effects of the US-China trade war. Big investors still like Brazil, despite the complicated political scenario and low growth. However, it is important to remember that the Brazilian economy is still in a slow recovery. Economic data is still bad.


But starting with the approval of the pension reform bill, investors cannot neglect the basic fundamentals of the economy. By the time the public pension reform is completed, investors should expect market growth based on the belief that stock prices will follow as expected should the economy remain sluggish. From this, Wall Street will then move on to other items of great value in the Bolsonaro to-do list, such as tax reform and also cuts in interest rates It is foolish to say that every success of the reform agenda is due only to President Bolsonaro. In fact, among the main players in this resumption of economy is Economy Minister Paulo Guedes, a favorite on Wall Street. Another key agent is the president of the Chamber of Deputies, Rodrigo Maia, who is appointed as the next presidential candidate.


* Deborah Toledo is with AMG Capital, a  Financial Services Firm in São Paulo.





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