More rate cuts could be a possibility because the Brazilian currency, the real, has been a solid performer among emerging markets currencies. The WisdomTree Brazilian Real Strategy ETF (NYSEArca: BZF) is one of this year’s best-performing currency exchange traded funds. BZF is higher by almost 7% year-to-date.
Brazil’s “economy contracted 3.6% y/y in 2016, following a similar drop in 2015, and leading to a reduction of over 7% y/y in real GDP in the last two years … factors that call for a better performance in 2017 growth are not based on a positive view on the country’s long term growth outlook, but rather on a (more cyclical) combination of: lower interest rates, higher confidence indicators, lower risk measures and some recomposition of inventories,” according to the Nomura note seen in Barron’s.
In addition to commodities prices (Brazil is a major oil, iron ore and coffee producer), other issues facing the economy there consumer debt and the strength of the country’s banks. Brazilian banks look mostly solid now, but some market observers have voiced concern over rising consumer debt.
For more information on the Brazilian markets, visit our Brazil category.