Global X, a leading exchange-traded funds (ETF) provider with assets of around $48 billion worldwide, expresses optimism about Brazil’s economic prospects. The company views Brazil as one of the most attractive cyclical opportunities in emerging markets, citing a monetary easing cycle, economic growth surpassing expectations, and increased attention from international investors.
Key Points:
- Global X’s Perspective:
- Global X considers Brazil’s economic landscape favorable, identifying strong momentum and still discounted equity valuations, even after a recent rally.
- Brazil stands out as an attractive cyclical opportunity in emerging markets, according to Global X’s Head of Emerging Markets, Malcolm Dorson.
- Brazil’s Monetary Easing Cycle:
- Brazil’s central bank initiated an interest rate-cutting cycle in August, reducing rates by a total of 200 basis points.
- The central bank has signaled two more 50-basis-point cuts ahead, and Global X sees room for further rate reductions as inflation hovers around 4.5%.
- Investment Opportunities:
- Longer duration and consumer plays are expected to benefit from falling interest rates and low unemployment.
- Potential outperformers include local banks and companies such as Localiza, Vamos, and Rumo.
- Economic Growth and Surprises:
- Brazil’s economic growth surpassed expectations in 2023, likely reaching 3%, well above the initial forecast of 0.8%.
- Finance Minister Fernando Haddad’s effectiveness in implementing investor-friendly policies surprised markets in President Luiz Inacio Lula da Silva’s first year in office.
- Investor-Friendly Policies:
- Finance Minister Haddad played a crucial role in passing a new fiscal framework and a tax reform, contributing to efforts to erase the country’s fiscal deficit.
- Brazil’s conservative-leaning Congress served as a check and balance, preventing radical actions while supporting government-backed measures.
- Investment Grade Potential:
- Global X believes that Brazil could move back towards an investment-grade credit rating within the next few years.
- While currently rated two notches below investment grade by major rating agencies, the company sees this goal as achievable if Brazil continues on its current course.
Global X, managing assets worth $48 billion worldwide, expresses optimism about Brazil’s economic outlook, citing factors such as a monetary easing cycle, strong economic growth, and favorable investor sentiment. The company sees Brazil as an attractive cyclical opportunity in emerging markets, highlighting potential investment opportunities and the possibility of returning to an investment-grade credit rating in the coming years.
