Brazil ETFs Set to Continue Struggle in 2015

January 20, 2015

Jared Cummans – ETF Database, 1/19/2015

Brazil has long been one of the most alluring emerging market economies, earning itself the “B” in the popular BRIC nation group. Its economy was once bustling and offering handsome growth for investors, but that has screeched to a halt in recent years. What’s worse is that it does not appear the emerging market will get back on track anytime soon.

From 2010 to 2014, EWZ had an average annual return of -9.81%; from 2005 to 2009 that figure was 47.74%, a stark contrast. The poor returns come as GDP continues to disappoint, among other things. 2014 saw a trade deficit of $3.93 billion, the largest since 1998. Exports in 2014 dropped 7% while inflation continues to rise. The hefty costs of hosting the 2014 FIFA World Cup certainly did not do the country any favors. To put it simply, the Brazilian economy is facing a number of headwinds, none of which are quick fixes.

Looking forward to 2015, the outlook is not much better. GDP growth fell from 2.3% in 2013 to 0.15% in 2014, as the economy suffered a sharp slowdown at the end of 2014. Analysts are forecasting GDP growth of 0.5% for this year; while that may be higher than 2014, it is certainly not a number that is going to get the economy back on the right track, as it still lies on the brink of a recession. On top of that, inflation continues to rise, forcing the central bank to raise rates to attempt to keep prices at bay.

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In Brazil, A Once-High-Flying Economy Takes A Tumble

January 16, 2015

Lourdes Garcia-Navarro – NPR, 1/14/2015

It was a terrible Christmas season for stores in Brazil. For the first time in more than a decade — since 2003 — sales went down.

Roberta Pimenta owns a small shop selling children’s clothes at the Butanta mall in Sao Paulo, which is aimed squarely at the middle-class shoppers who live in the area.

“It was the worst drop in sales since I’ve had this store,” Pimenta says. “In seven years it was the worst year I had. And every year you have a 10 percent increase of employees’ salary, 10 percent increase in the rent, 10 percent in everything, so it is horrible.”

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Brazil’s Real Drops From One-Month High on Economic Team Concern

January 15, 2015

Paula Sambo – Bloomberg News, 1/15/2015

Brazil’s real fell from a one-month high on concern over Finance Minister Joaquim Levy’s ability to restore growth to Latin America’s largest economy.

The currency dropped 0.5 percent to 2.6306 per U.S. dollar at 2:57 p.m. in Sao Paulo after climbing yesterday to its strongest level since Dec. 9. Swap rates, a gauge of expectations for changes in borrowing costs, declined 0.04 percentage point to 12.62 percent on the contract maturing in January 2016.

Concern that Brazil’s fiscal deterioration would lead to a reduced credit rating helped push the real down 11 percent in 2014. Levy told reporters in Brasilia on Jan. 13 that seeking to cut gross debt below 50 percent of gross domestic product in the long term would be a positive step.

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Brazil’s fading economy sounds a warning for EM

January 13, 2015

Jonathan Wheatley – Financial Times, 1/12/2015

The year is barely under way and already Brazilian analysts are hurriedly revising down their projections for economic growth in 2015. In the central bank’s second weekly survey of market economists of the new year, published on Monday, gross domestic product is seen expanding by just 0.4 per cent, down from 0.5 per cent expected last week and about 0.7 per cent a month ago.

It is an inauspicious way to begin a year that not only will be hugely significant for Brazil but in which Brazil – or so Manoj Pradhan and Patryk Drozdik of Morgan Stanley argue in a note on Monday – will be hugely significant for the rest of EM.

As Brazil embarks on president Dilma Rousseff’s second four-year term in office, it is no exaggeration to say its future hangs in the balance. Rousseff (pictured above) won last October’s election partly by demonising the “neo-liberal”, market-friendly policies proposed by her opponent, Aécio Neves of the centrist PSDB. But faced with an urgent and increasingly desperate need to generate economic growth, she has appointed a market-friendly economics team that might have been chosen by Neves himself.

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Levy na Fazenda ajudara relacao com EUA

December 4, 2014

Paulo Sotero – O Estado de S.Paulo, 12/04/2014

The director of the Brazil Institute discusses his views on the incoming Minister of Finance Joaquim Levy.

Click here to view the article…

Brazil’s Real Falls Most in Emerging Markets on Economic Concern

November 4, 2014

Paula Sambo – Bloomberg Businessweek, 11/04/2014

Brazil’s real led emerging-market declines as an unexpected drop in industrial production in September added to concern that President Dilma Rousseff will struggle to revive Latin America’s largest economy.

The currency weakened 0.9 percent to 2.5189 per dollar at 2:02 p.m. in Sao Paulo in the biggest drop among 24 developing nations. Swap rates, a gauge of expectations for changes in borrowing costs, increased 10 basis points, or 0.10 percentage point, to 12.49 percent on the contract due in January 2017.

The real also fell on wagers that Rousseff will appoint a finance minister who will maintain policies that helped lead to Brazil’s first recession since 2009. One-month implied volatility on options for the real, reflecting projected shifts in the exchange rate, was the highest among 16 major currencies.

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Brazil’s big problem is Rousseff’s past

November 3, 2014

Misha Glenny – Financial Times, 11/2/2014

Given the decline in Brazil’s fortunes in the past two years, President Dilma Rousseff has pulled off a striking political coup by persuading voters to re-elect her, albeit with a reduced majority. The markets, however, do not appear convinced.

Her economic record since 2012 has been weak, to put it diplomatically. Although battered by global economic winds, India and China are nowhere close to the technical recession Brazil is now experiencing.

Inflation has crept above the 6.5 per cent target set by Ms Rousseff’s government. Having experience hyperinflation in the 1980s and 1990s, Brazilians are highly sensitive to this indicator. Last year inflation was behind the rising cost of public services, above all transport; the increase in fares in São Paulo and Rio were a leading cause of the protests that shook the Brazilian elite.

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