Brazil Election Brings Uncertainty

Some market observers believe Brazil, while one of the most volatile emerging economies as measured by EWZ’s standard deviation, is one of the most compelling opportunities in Latin America.

“Sustained failure to address fiscal issues leading to rapid growth in the government’s debt burden would be a negative credit factor. Similarly, deterioration in the sovereign’s domestic and/or external market access conditions would weigh on the ratings. Fitch downgraded Brazil’s rating to ‘BB-‘ from ‘BB’ in February 2018 and revised the Negative Outlook to Stable,” according to Fitch.

Despite the difficulty in predicting the next president, there are still constructive drivers that should benefit stocks over the next few months. For instance, J.P. Morgan expects Brazil to post the best corporate earnings growth in 2018 among Latin American peers. Additionally, a number of its industries are linked to commodities, which benefit from a weaker real currency.

For more information on the Brazilian markets, visit our Brazil category.