With the support of the previous president, the new president of Brazil may continue to nurture the incredibly strong emerging market. Investors have been flocking to Brazil’s markets and exchange traded funds (ETFs), but the government may begin to limit the access for foreign investors.
Dilma Rousseff, of the incumbent Worker’s Party, will become Brazil’s first female president, according to Forbes. With the uncertainty of an election over, investors may rely more on the fundamentals to determine Brazil’s market swings. [Brazil ETFs Wait for New President.]
Central Bank of Brazil Deputy Governor Luiz Awazu remarked it was “very possible” that Brazil may be further limiting foreign capital inflows to stem the Brazilian real from appreciating more against the U.S. dollar, report Ken Parks and Alberto Messer for The Wall Street Journal. The real has appreciated more than 30% against the dollar since 2009, which is pressuring the country’s export industry. [Currency ETFs Get Ready to Rumble.]
The government has already increased the country’s financial operation tax on foreign investments and raised the tax on margin deposits for derivatives market transactions. The Central Bank and Treasury have also been buying up the dollar.
Institutional investors are capitalizing on the low interest rates in the U.S. and other developed country by throwing money into high-yield assets of the quickly-expanding emerging markets, which resulted in the fast appreciation of emerging market currencies against the dollar.
The Central Bank estimates that the economy will grow by 7% this year, with annual inflation at around 4.5% and 6%. The Selic interest rat is currently at 10.75%. As of October, Brazil’s 12-month IPCA consumer inflation index hovered at 5.03%.
For more information on Brazil, visit our Brazil category.
- iShares MSCI Brazil Index Fund (NYSEArca: EWZ)
- Market Vectors Brazil Small-Cap ETF (NYSEArca: BRF)
- iShares MSCI Brazil Small Cap Index Fund (NYSEArca: EWZS)
- WisdomTree Dreyfus Brazilian Real (NYSEArca: BZF)
Max Chen contributed to this article.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.