Maria Levitov – Bloomberg Business, 8/14/2015
Bet on India’s growth stories and shun Brazilian behemoths when the Federal Reserve raises interest rates, emerging-market stock-pickers say.
India will probably do best among the 10 largest emerging equity markets after the Fed boosts rates for the first time in nine years, and Brazil the worst, according to a Bloomberg survey of 10 stock fund managers in the U.S., Europe and Asia.
A Fed increase, which may come next month, would herald the end to an era of record-low U.S. interest rates that supported demand for riskier assets. Higher U.S. borrowing costs threaten to lure money out of developing nations, making it costlier to finance budget and current-account deficits.
Walter Brandimarte – Reuters, 6/17/2015
Yields paid on Brazil’s interest rate contracts rallied on Wednesday after a central bank director said recent progress in inflation expectations was “not good enough,” while Latin American currencies weakened slightly ahead of a U.S. monetary policy statement.
Brazil’s interest rate futures for January 2017 rallied 8 basis points to 14.04 percent as comments from central bank director Tony Volpon led investors to bet rates would remain high for longer than expected next year.
In a meeting with investors in London, Volpon acknowledged a recent improvement in inflation expectations for 2016 but suggested more must be done to meet the government’s target of 4.5 percent.
Juan Pablo Spinetto, Anna Edgerton, Sabrina Valle – Bloomberg Business, 05/27/2015
Oil was to be the elixir of Brazil’s dreams to build a formidable economy, promote industrial development and fund a more generous welfare state even as it attracted billions in private global investment.
Instead, crisis and disappointment in the oil sector are beckoning Brazil’s leadership to move — if grudgingly — toward more deregulated industries and to temper the government’s hand in using state-run companies to forge broader economic policy.
Which helps explain why, as her second term takes shape, some of President Dilma Rousseff’s ministers have jettisoned the statist language of her first four years in office and those of her popular predecessor, Luiz Inacio Lula da Silva. Instead, they are floating some liberal notions more in keeping with the pre-Lula years.
China is planning to invest up to $50bn (£32bn) in Brazil for new infrastructure projects.
The deal is due to be signed by banks from both countries during a visit by Chinese Prime Minister Li Keqiang to Brazil next week.
The money will go towards building a railway link from Brazil’s Atlantic coast to the Pacific coast of Peru to reduce the cost of exports to China.
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.
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.”
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.