- Equity Portfolio Manager
Corporate Sustainability
Investment Solutions
Our approach to sustainability
United Kingdom, Intermediary
Change
The views expressed are those of the author at the time of writing. Other teams may hold different views and make different investment decisions. The value of your investment may become worth more or less than at the time of original investment. While any third-party data used is considered reliable, its accuracy is not guaranteed. For professional, institutional, or accredited investors only.
I have published my views on Brazil more than once over the past year (most recently in my November 2021 blog post), but the environment there has changed markedly through the first few months of this year, with COVID-related risks seemingly on the wane and the Russia/Ukraine conflict having driven up commodity prices — so I thought now would be an opportune time to share a fresh perspective on South America’s most populous country.
To wit, some of my colleagues and I just returned from a productive business trip to the bustling metropolis of Sao Paulo, where we visited retail, financial, health care, and education companies. Based on our conversations with firm executives and others, we found the corporates’ mood to be quite positive overall. And why not? Business trends have been on the upswing, mask mandates were recently lifted, soybean prices are sky-high as of this writing, and (for better or worse) the city’s notoriously brutal traffic is back again.
My main takeaway from this trip and my team’s latest research: At the country level, I think Brazil is a “buy” right now and perhaps through the rest of 2022 as well (though time will tell.) At the company level, as always, there are of course both risks and opportunities for investors to be mindful of.
My investment case for Brazil
At present, my bullish outlook for Brazil is predicated on several key factors, including:
- What’s different vs 20 years ago: The Brazilian Congress has matured into a formidable check on the Executive branch, the Central Bank of Brazil is now independent, and Brazilian corporates as a group have stronger balance sheets than in the past.
- The interest-rate cycle: Encouragingly, the Central Bank of Brazil has been hawkish thus far in its efforts to rein in inflation. It has raised interest rates from 2% to 12% and, other than China, may be the first emerging market central bank to cut rates again (in 2023).
- A strengthening currency: The Brazilian real (BRL) has strengthened on the back of rising interest rates and may continue to do so going forward amid favorable terms of trade — higher soybean, oil, and iron ore prices — and positive currency carry trade.1
- Lower election risk: Brazil’s 2022 general election will decide the country’s next president on October 2. While it’s not a risk-free contest, Brazilian markets have already priced in a sizable risk premium and, I think, can fare well regardless of the outcome.
- Attractive valuation: Brazil’s equity market is trading at what appears to be an attractive discount to both Brazilian bonds and broader emerging market equities (Figure 1). Some higher-quality domestic cyclicals look particularly attractive to me from a valuation standpoint.
Figure 1
1Positive carry is an investment strategy that involves investing borrowed money and then earning a profit on the difference between the return and the interest owed. Investors commonly use positive carry in currency markets.
Expert
Related insights
Showing
of
Insights Posts
URL References
Related Insights
Stay up to date with the latest market insights and our point of view.
Read next
Showing
of
Insights Posts
Why investing in themes for EM equities may reap rewards
Portfolio Manager Dáire Dunne outlines why he is increasingly optimistic about the potential opportunities within select EM equity themes this year.
Article
2024-02-29
Monthly Market Snapshot — December 2022
A monthly update on equity, fixed income, currency, and commodity markets.
Whitepaper
2023-03-15
Financial Market Review — Fourth quarter 2022
A quarterly update on equity, fixed income, currency, and commodity markets.
Whitepaper
2023-07-15
China internet: Identifying opportunities amid economic reopening
China’s re-opening and economic recovery from its zero-COVID policy has bolstered our optimism in Chinese internet companies.
Article
2023-12-31
Small-cap value: Strong past, bright future?
While equity markets have had a challenging recent past, history teaches us that there may be several reasons to be optimistic about small-cap value.
Article
2024-01-31
Thematic investing focus: The future of food
The global food system has reached a tipping point and change is coming, creating investment opportunities aided by demographic, policy, and innovation tailwinds.
Article
2024-01-31
What’s next for infrastructure?
Portfolio Manager Tom Levering and Global Industry Analyst Tim Casaletto explore the outlook for infrastructure assets in 2023 across each of the key areas.
Article
2023-12-31
Fintech opportunities after the recent pullback
In four short videos, our fintech investors explore the sector's outlook amid today’s dispersion and highlight the long-term growth potential in payments, fintech incumbents, and crypto innovation.
Video
2023-11-30
Equity investing with a thematic lens: Three game changers for 2023
Head of Investment Research Mary Pryshlak and Equity Portfolio Manager Tim Manning highlight their strongest convictions across global equity markets heading into 2023.
Article
2023-12-31
The pivotal role of stewardship in creating lasting value
Yolanda Courtines and Alex Davis share two case studies that highlight the pivotal role of stewardship in creating lasting value.
Continue reading
Article
2023-10-31
Thematic investing focus: The accelerating drive for financial inclusion
The global effort to expand access to financial services is getting a boost thanks to the digitalization trend and the growing consumer acceptance of technology, creating a range of investment opportunities.
Continue reading
Article
2023-09-30
URL References
Related Insights