Why Brazil still remains attractive?
Brazil’s (EWZ) stock markets were raging since the start of 2017 and may have been nearing overbought levels. But the revelations of President Temer being involved in a bribery scandal sent stocks and the real downwards on May 18 sending valuations to their lowest levels in a year. Last week, EPFR Global reported that inflows to Brazil equities touched $760 million between May 19 to June 2, the highest levels in the past five years.
Many investors see such short-term price corrections as an opportunity to take up long-term positions. In 2015, Brazil was the worst performing emerging market globally because of a looming recession and political instability. However, last year, after the impeachment of Dilma Rousseff Brazilian assets picked up making it the best performer in 2016. The economy has now recovered from a recession and grew by 1% in Q1 2017. Presently, analysts are bullish on the country with expectations of structural reforms to fiscal and economic policies.
Aaron Visse, an emerging-market portfolio manager at Salient Partners is bullish on Brazil in the long term. “We think there are companies that you can invest in Brazil today that are going to be able to deliver steady, stable growth,” he mentioned in a recent interview with Bloomberg. Morgan Harting, a portfolio manager at AllianceBernstein believes the recent selloff in Brazil has made it more attractive than it had ever been. He prefers Brazilian bonds over equities as they offer better risk-adjusted returns. After the nation’s currency plunged, the fund manager in betting on the Brazilian real.
Harting favors Brazilian bonds, where he sees better risk-adjusted returns than equities, and said he’s buying the Brazilian real. Analysts believe these political scandals present an attractive buying opportunity for investors wanting to enter the market. Brazil’s stock markets have rallied since the start of the year, and a sharp correction last week means they are now at cheaper levels to take fresh positions.
William Pruett, Portfolio Manager at Fidelity Investments, is waiting for interest rates to fall. He believes Brazil has immense growth potential and is optimistic on banks, consumer discretionary companies, and industrials.