Brazilian stocks have rallied this year and banks in Latin America’s largest economy appear inexpensive, those institutions are faced with declining consumer credit quality. Additionally, some Brazilian states have recently delayed payment to public workers, potentially crimping the ability of those workers to repay loans taken from Brazilian banks.
“Hefty tax breaks and years of heavy spending caused deterioration in Brazil’s fiscal accounts, helping push the economy into its worst recession in a century,” according to Reuters. “A ballooning overall fiscal deficit, which accounts for about 10 percent of the country’s gross domestic product, led major rating agencies to strip Brazil of its coveted investment- grade rating in 2015.”
Earlier this month, Credit Suisse said Petrobras (NYSE: PBR), Brazil’s state-run oil company, could offer upside of up to 20%. Petrobras is one of the largest holdings in EWZ.
For more information on the Brazilian markets, visit our Brazil category.