Daily Management Review

Recession, corruption, Zika virus do not scare investors in Brazil


08/08/2016


Brazil now is full of problems: the economy is in recession, high-ranking officials proved involved in the corruption scandal around Petrobras, President was barred from the office, Zika virus epidemic continues. Athletes and fans came to the Olympics in Rio de Janeiro have already encountered numerous domestic and logistical problems, while many local residents have criticized the government for the cost of the Games.



Yet, Brazil is the best place to invest in 2016.

Brazil’s stock index MSCI has increased by 60% since the beginning of the year, which was the best result among a rating of 165 countries compiled by MSCI. Brazil’s Government bonds included in JPMorgan Emerging Markets Bond Global Diversified increased by 24%, showing the third result among the 66 countries, and Brazilian corporate bonds grew by 22%. The real’s rate, fell against the dollar in recent years, has risen by 24% in 2016.

Brazil stands out even among emerging markets, which are showing excellent growth in 2016. Many analysts have predicted that their fall, which lasted more than one year, may continue this year. Yet, this did not happen, since low or negative interest rates in developed countries made many investors turn to developing markets in search of at least some yield. Inflow of investments in emerging markets bonds in July reached a record $ 14.1 billion, according to EPFR Global.

However, this growth essentially causes many investors to worry, since it is not accompanied by political reforms and economic recovery, which is a prerequisite for long-term investment in developing countries. Therefore, some investors are worried that the growth may be followed by a sharp fall in the event of a market shock, or a sustained increase in interest rates. The latter may restrict access of these countries and their companies to cheap borrowing in the global bond markets.

On the other hand, investors are linking their hopes with the ongoing procedure of impeachment of President Dilma Rousseff. They rely on the fact that Michel Temer, acting president, would show a friendly attitude towards business policies that promote economic growth. For example, Temer proposed an amendment to the constitution to restrict public expenditure for 20 years in order to monitor the level of public debt. These investors are hoping that Temer would follow example of Argentina's new president Mauricio Macri, who settled a long-running dispute with holders of defaulted government bonds, and eliminated barriers to entry the country’s stock market for foreign investors. However, Temer’s ratings are low, and he is implicated in the corruption scandal around Petrobras. Rousseff has accused him of trying to organize a coup, but Temer denies these accusations.

Meanwhile, Brazil’s sovereign rating was assessed "Ba2", outlook is negative. Weakening of the country’s economic situation imlpies deterioration of conditions for change for the better sovereign credit rating.

Low commodity prices and risk aversion in the global market also put pressure on the country's credit outlook. "Total of the country's credit metrics are unlikely to deteriorate even more, they will remain weak for a long period of time" - said Vice President and Senior Analyst at Moody's Marcos Schmidt.

Continuing political instability is delaying structural reforms to support growth and restrict the debt burden. Confidence in the country has improved after ouster of President Dilma Rousseff, yet the government's ability to implement new policies and economic reforms still remains uncertain, the agency said.

source: ft.com, moodys.com






Science & Technology

Fast Company: Apple isn't the most innovative anymore

U.S. Space Program Could Be Delayed Due To SpaceX, Boeing Design Risks: Reuters

What trends will be affecting the health sector in the coming years?

Deloitte identifies main cyber threats for power industry

Zenuity To Take Self Driving Car Road Test In Sweden With Permission

Researchers: Half of Facebook users is fake

Amazon’s Ring gets in a privacy scandal

Facebook Is Creating A Stablecoin For Its WhatsApp Users

IBM offers to use the first quantum computer

Passport Numbers Of 5 Million Customers Hacked: Concedes Marriott

World Politics

World & Politics

AirHelp expects up to 33 th of cancellations and flight delays per day all over the world in 2019

Far-right and Catalonia: New elections in Spain

Trump is losing rating because of shutdown

Hanoi, Vietnam Chosen As Place For 2nd Summit Between Trump And Kim Jong-Un

US, China to hold new negotiations in Beijing

Human Rights Not To Be Dissociated From Stability, Macron Tells Sisi

Brexit Hijack Is Not The Parliament’s Right

Macedonia ignites political crisis in Greece