Many safeguards have been implanted into Brazilian banking systems such as high interest rates, reserve requirements, and government backing. The resulting likely hood of bank failures is said to be minuscule.
The Brazilian government has also followed some prudent plans to fend off fiscal problems. It has decreased public sector’s debt from more than 60% of GDP in 2002 to less than 40%. Most dollar-denominated debts have also been dealt with.
Unlike most countries, Brazil’s financial problem mainly lies in the private sector. This poses an impediment to this sector’s ability to invest. Analysts have reduced growth forecasts for the country from 3% to 2% for the next year.
The iShares MSCI Brazil Index Fund (EWZ) is currently down 52.6% year-to-date. The financial sector is the fund’s third-largest weighting at 19.6%. It’s behind energy (30.2%) and industrial materials (27.2%).