As a main commodity - exporting country, Brazil is well - positioned for further outperformance thanks to the unfolding commodity bull market. Brazil's economy is large and it holds many potential opportunities for investors amid a backdrop of improving fundamentals, according to Mark Mobius.
In December, Brazil's central bank cut its key interest rate, the Selic, to a record low of 7%. The central bank also lowered its inflation forecasts for 2017 and 2018. And, growth is expected to continue to pick up; the International Monetary Fund is forecasting growth of 1. 5% in 2018 and 1. 9% in 2019. This combination of moderately rising growth amidst falling inflation rates is really a Goldilocks - scenario for Brazil.
Political risks
For some time now Brazil is heavily impacted by a corruption scandal that started at oil giant Petrobras (NYSE:PBR) and led to the impeachment of President Dilma Rousseff. In May, the Brazilian stock exchange fell sharply after the Brazilian newspaper O Globo reported that the chairman of meatpacking giant JBS, Joesley Batista, secretly recorded the discussion in which Brazilian President Michel Temer gave his blessing to an attempt to pay a potential witness to remain silent in the country's biggest - ever graft probe. O Globo reported that Batista and his brother, JBS CEO Wesley Batista, presented the recording to prosecutors as part of plea bargain negotiations. Temer managed to remain in power, but the sharp fall in the Brazilian stock market in May proves that political risks and the accompanying volatility are something to take into account when investing in Brazil.
And although the corruption scandal (and its impact on politics) is still in full swing, the Brazilian economic figures show signs of improvement. Thanks to the rebound in commodity prices, the Brazilian stock exchange performed very well the last two years. We believe Brazilian stocks can continue this upward trend.
Source: Seeking Alpha