That said, while we look for equity opportunities in other parts of emerging markets, investors may want to give Brazil’s fixed-income markets a second look. To the extent that the government has already expressed that that it will strive to maintain an investment grade credit rating, fiscal austerity will likely trump growth in the short term. In addition, Brazil has one of the lowest debt to gross domestic product ratios (approximately 19%) and one of the largest foreign currency reserves balance (about USD 370 billion) in emerging markets. Thus, Brazilian sovereign bonds in local currency with rates at 13% and above seem particularly attractive in a yield hungry world, with an important number of the key risks already reflected in the price.
Source: Bloomberg.
Russ Koesterich, CFA, is the Chief Investment Strategist for BlackRock and iShares Chief Global Investment Strategist. He is a regular contributor to The Blog and you can find more of his posts here.