Eq: EMs

(Sao Paulo)

Brazil appears on the edge of a full blown revolution. The country is in the midst of a complex and tense political standoff which has its citizens rioting violently. Current president Dilma Rousseff made an appointment for Lula Da Silva, the country’s former president and Roussef’s mentor, to become a government minister. However, the opposition argues that this was only done to shield Da Silva from immediate arrest related to corruption charges, as holding a ministerial position makes Da Silva immune from all court proceedings other than the Supreme Court, which is more likely to rule in his favour. However, just as the swearing in process was occurring, a separated judge issued an injunction blocking the appointment on the grounds that it would prevent the “free exercise of justice”. Protests enveloped the country Wednesday and Thursday as recordings were released of Da Silva speaking about the investigations and a conversation with Rousseff about the appointment. Brazilian assets rallied as investors saw the government as likely to fall.


FINSUM: This is quite a political and societal volcano for Brazil, and seems to be the culmination of a long period of growing frustration. Anyone’s guess how this will affect Brazilian markets.

Source: Financial Times

(Rio de Janeiro)

Pimco, one of the world’s best known asset managers is joining a growing body of firms who believe emerging market assets offer a tremendous opportunity. A sub-adviser to Pimco, Research Affiliates, says that “The exodus from emerging markets is a wonderful opportunity -- and quite possibly the trade of a decade -- for the long-term investor”. Pimco joins Goldman Sachs Asset Management, BlackRock, and Franklin Templeton in getting bullish on EMs after three years of poor performance in the space. Research Affiliates thinks that emerging market assets are “exceptionally cheap”, after the MSCI’s benchmark gauge fell 30% over the last three years. The Shiller P/E Ratio for emerging markets dropped to 10 in January, a level it has only gone below six times in the last 25 years, with an average five-year rally of 188% following.


FINSUM: We think emerging markets are a good long-term buy, as development and financial capitalism are unstoppable forces that will lift markets in the developing world. However, on a more country specific basis, there are major risks. Consider Japan, which 30 years ago would have been seen as an emerging market, a country whose economy peaked in the early 1990s and has since stagnated. China could be the next Japan.

Source: Bloomberg

(Sao Paulo)

Brazil has been trapped in an economic doldrums for some time. Its whole economy is mired in a deep recession with high inflation, as well as a top-level political scandal. However, Brazil has just announced a new plan to help the country’s various industries survive the current recession. The government will extend $20.4 bn in extra credit to help a number of groups, ranging from farmers to real estate companies. The country says it wants to make better use of “the resources that already exist”, and that it is the responsibility of the government to do so. Analysts are worried that the new package means the government is abandoning its austerity program. One analyst commented that “It's doubtful that it will trigger the turnround in activity that the government hopes”.


FINSUM: This package seems too small and more focused on keeping debtors from collapsing than actually improving things, as this piece says.

Source: Financial Times

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