Now could be the ideal time for investors to go nuts over the fast-improving Brazilian economy, according to experts.
The country has made some great progress since collapsing into crisis just two years ago.
Inflation has fallen from more than 10% to less than 4% and more interest rate cuts are expected.
Although the other emerging markets of India and China are still surging ahead, Brazil is different because of the recent political and financial crisis that plunged the economy off the rails, says Sheridan Admans, of investment broker The Share Centre.
Admans manages the broker’s multi-manager funds and tips Brazil as his favourite emerging market.
Confidence from reforms package
“The country has made tangible economic progress over the past 18 months, implementing sound macroeconomic policies resulting in manageable inflation and stronger financial systems,” he said.
“Indeed, inflation has fallen from double digits in 2016 to below 4%, which has had the added benefit of narrowing the central banks inflation band. Interest rates are now around 10% and the data is therefore suggesting the economy is making progress since its economic crisis in 2015. Investors should appreciate that the expectation of further interest rate cuts should be supportive of growth ahead.
“Despite President Temer’s recent corruption implication, the administration has been preparing to implement measures that should stabilise the country’s fiscal position and boost business confidence further. Parliament and consensus seem keen to push ahead with the reforms package too, which should provide any onlookers with some confidence.”
…But elections sows doubt
Admans also sees opportunity in Brazil and Mexico as upcoming 2018 presidential elections stir uncertainty that may push share prices down.
“Indeed, the political situation in Brazil has certainly not been a simple one. As an example, in July this year, a federal judge found Luiz Inacio Lula da Silva guilty of corruption, dealing a serious setback to the former president’s aspirations at another run as president. With Lula widely considered being among the less-business friendly candidates, markets rallied,” said Admans.
“The economic downturn in Brazil and corruption at the highest levels of politics and commerce has now left equities on attractive valuations – trading at about 14 times earnings and at a discount to the wider emerging markets and below the long-run average, despite the rally in 2016. We believe now could be a better time than any for investors to consider joining the carnival in Brazil.”