Jpmorgan Brazil Investment Share Discussion Threads

[loganair] 01/10/2015 13:35

God forbid an analyst or journalist, just thoroughly look into things and prepare and plan as much as I can and therefore to make as few mistakes as I can.

[votiem] 01/10/2015 12:12

Thank you my friend.Your posts are always so well written and meticulously researched. Are you a by chance a journalist or analyst? Just curious...

[loganair] 30/9/2015 10:19

Votiem, I buy on a monthly bases via JP Morgan monthly investment plan, which I switch around the various JP Morgan Investment Trusts. When in comes to my monthly investments my investment time frame is long term, usually 10 years or maybe more, this month and last I have doubled the amount I invest and am happy do continue to do so at this amount until JPB rises above 50p as at some point next year the Brazilian economy is expected to return to growth and in my good opinion at that time the JPB share price will also rise.

[votiem] 30/9/2015 08:24

So Logan. Have you suspended buying until you sense the bottom has been reached?

[votiem] 29/9/2015 10:26

Wow so JPB could sink even more... has to be a bottom... 25p?

[loganair] 28/9/2015 09:24

There's no way around it: Brazil is a disaster by Myles Udland:

There's no way around it: Brazil is a disaster.

In a report to clients on Friday, economists at Deutsche Bank took a detailed look at South America's flagging economy and found that, any way you cut it up, things are not good.

In recent weeks, the government has seen its debt rating cut to junk, and in response it introduced a $17 billion austerity package that will freeze public hiring, cut about 1,000 jobs, and eliminate 10 ministries altogether.

As the AFP outlined in a report earlier this week, Brazilian President Dilma Rousseff has now been "painted into a corner" as she deals with a recession, inflation rising sharply, unemployment soaring, and corruption allegations to boot.

In short, things are nightmare.

And in its report Deutsche Bank said Rouseff may not be long for the presidency, writing:

The economic scenario remains very volatile, as the recession and the political crisis continue to feed each other. President Dilma Rousseff is becoming increasingly isolated, and with unemployment still rising and no recovery in sight, more bad news on the economic front (e.g., another downgrade) could further boost the opposition’s movement for her impeachment. While this is still not the most likely scenario, we believe the probability that the president will not be able to finish her mandate in 2018 has risen to approximately 40% – a significant risk.

This, of course, would bring further hardship to the country's economy and more volatility to financial markets, which have also seen significant pressure because of the slowdown in China — Brazil's main export partner — and the appreciation of the dollar, which has weighed on the value of the real.

Consumer and business confidence, unemployment rising, inflation soaring, expectations that Brazil could default spiking, and retail sales dumping — there is little to get excited about in Brazil.

[loganair] 11/9/2015 20:39

Brazil’s economy will likely get worse before it gets better:

Brazil is experiencing its worst economic downturn in 25 years. And, analysts say, it’s going to get worse before it gets better.

Standard & Poor’s Ratings Services suggested as much when they downgraded the country’s foreign-currency sovereign debt by a notch to “BB+,” leaving it in junk territory for the first time since 2008.

The move followed a downgrade by Moody’s Investors Service by a month. Moody’s downgraded sovereign debt to “Baa3” from “Baa2,” leaving it in investment-grade territory. They also upgraded their outlook to stable from negative.

With this in mind, analysts found the timing of S&P’s decision surprising. That the ratings agency moved so quickly was a reflection of the rapid deterioration in Brazil’s political and economic situation over the past few weeks, said Arnaud Masset, a market analyst at Swissquote Bank SA.

“Dilma Rousseff’s ruling coalition is falling apart while the Congress is undeniably sidestepping the cutting of expenses, instead using watered down measures devised by [Brazil’s Finance Minister] Joachim Levy,” Masset said.

And now, investors are waiting for the other shoe to drop. If either Moody’s or Fitch downgrades Brazil, analysts say, there will likely be an exodus of investors moving out of Brazilian assets, as large pension firms typically invest only in assets with an investment-class rating from at least two of the big three ratings firms — Standard & Poor’s, Moody’s and Fitch.

“As such, we see forced selling ahead when one of the other agencies pulls the trigger and cuts Brazil below investment grade too. It’s only a matter of time, in our view,” said Win Thin, global head of emerging market currency strategy at Brown Brothers Harriman.

The downgrade could be a problem for other troubled emerging-markets economies like Turkey and South Africa. It “sends a strong signal that the [ratings] agencies won’t hesitate to cut investment grade countries,” Thin said in a note to clients.

Real falls to record low:

Brazilian assets sold off Thursday in response to the downgrade. The real, the country’s besieged currency, fell 2.5% to 3.90 real to the dollar Thursday morning local time — a record low.

The currency USDBRL, +0.7170% has shed 44% of its value against the dollar so far this year, and analysts expect it to be one of the worst performing currencies against the dollar in 2015.

Brazil’s Bovespa BVSP, -0.36% index finished Thursday’s session down 0.4%, or 201.8 points, to 46,602.

The yield on the benchmark dollar-denominated 10-year note closed at 5.686, according to Tradeweb data, up from Wednesday’s closing yield of 5.57%.

‘A perfect storm’

Brazilian assets have been weakening or the past year, a result of what Thin, the currency strategist from Brown Brothers Harriman, calls “a perfect storm and internal developments.

A wide-ranging corruption scandal at the state-owned oil giant Petrobras has sapped the credibility of Rousseff’s government, scaring off investors.

Nine months ago, investors found a cause for optimism in Levy, a University of Chicago-educated economist who assumed the role of finance minister at the beginning of the year. Many hoped he would help the government reign in spending as the country’s growth outlook soured.

But his attempts to implement austerity measures have been stymied by an antagonistic Congress. Rousseff’s economic team to submitted a 2016 budget bill that featured a primary deficit of 0.5% of gross domestic product. That was the last straw for S&P.

Falling commodity prices and slowing growth across the developing world have also contributed to declining growth in Brazil, said Geert Aalbers and Thomaz Favaro of Control Risks, a global consultancy. Brazil is a major exporter of industrial commodities to China, and slowing growth there threatens to hurt Brazil’s industry.

Brazil’s gross domestic product shrank 1.9% in the second quarter, in seasonally adjusted terms — its second straight quarter of declines.

FactSet Economics estimates real gross domestic product will contract by 2% in 2015, and grow by only 0.5% in 2016.

But the analysts from Control Risk said that the country’s circumstances are deteriorating so rapidly, growth could undershoot even the widely forecast 2% contraction.

[loganair] 26/8/2015 10:18

WPP - "But concerns about China, aggravated by the recent RMB devaluation and stock market decline, and Brazil remain, although we remain unabashed bulls of both."

[loganair] 23/8/2015 09:39

Brazilians, this is as good as it gets right now.

Prices are finally hitting their peak.

Yes, besides the rounding up of bad guys associated with the so-called Car Wash scandal at oil firm Petrobras, the best news to come of Brazil for investors and the guy on the yellow bus from Santa Cecilia to Avenida Paulista is that prices are decelerating.

As measured by the recent inflation data, the IPCA-15 rose at 0.43% month over month, bringing inflation to 9.57% on the year. The average of the three core pricing measures decreased, in seasonally adjusted terms, to 0.70% from 0.83% in July. Services inflation also moved lower, to 0.40% from 0.56%, while tradables inflation had a more smooth decrease, to 0.44% from 0.56%.

They are still going up, but the good news is that they are going up less. Everyone wants this. Not only because life in Brazil is more expensive than meets the eye, but from an investors viewpoint, lower inflation gives the central bank room to cut interest rates, currently at 14.25%.

The decrease in the monthly inflation readings is a trend markets will likely observe throughout the second half. If so, interest rates will start to fall in early 2016.

[loganair] 22/8/2015 22:51

Macro Picture:

Sharp falls in some local currencies – Russia, Argentina, Brazil and Turkey - have resulted in imported inflationary pressure. We do not expect this inflation pressure to persist. Moreover, those with high real interest rates (Brazil and Turkey) will be better placed to withstand the trend of tightening US rates.

Nine EM markets became oversold last week including virtually all LatAm indices, Thailand, Indonesia and Russia.

LatAm has moved to a substantial discount relative to other EMs; correlation to China has now broken down.

Brazil - How Much Lower?

The Brazilian stock market has plummeted on the back of:

Global commodities rout hammering companies from Vale to Cosan

Corruption scandal wiping out $60bn from Petrobras capitalisation

Worsening inflation, low growth and spectre of energy rationing

Disappointment of Rousseff re-election


Brazil – Confidence at Washed-out Levels:

This shattering of confidence has created buying opportunities in selected companies where the downside is more than priced in.

Concluding Remarks:

The perception of a Fed rate-tightening cycle is that EMs suffer. In fact the last cycle (2004-07) shows the reverse – EMs not only rose, but outperformed DMs

Consensus EM Manager positioning continues to overweight India, and underweight China and Korea

Heavily oversold market leaders in Brazil offer a great investment opportunity, particularly as rates roll over.

[loganair] 21/8/2015 21:55

Brazil hurtles towards its worst recession in 25 years – but I’m still buying by James McKeigue.

It’s been a tough weekend for Brazil’s president Dilma Rousseff. On Sunday, half a million Brazilians took to the streets demanding that she step down.

The protestors are angry at a massive corruption scandal that involved much of the country’s business and political elite – and perhaps even Rousseff herself.

The markets are protesting too – and if anything, they have even more reason to be angry than Sunday’s marchers. Brazil’s currency, the real, has slumped to 12-year lows against the dollar, ratings agencies are threatening to downgrade Brazil’s debt to junk bond status and the country is facing its most severe recession for 25 years.

In short, Brazil’s economy is a mess, and it’s only going to get worse.

Regular readers will know that for years I warned investors to stay away from Brazil – preferring to watch this tragicomedy rather than become part of it. But a few months ago I changed tack and decided to tip Brazil for the first time. Why?

Because things were so bad, and the market so cheap, that I saw an opportunity. Brazil might be lurching from crisis to crisis, but we can still make money there.

Rousseff is clinging to power by a straw:

The scale of Brazil’s corruption scandal, known in the media as “Operation Carwash” (because of a petrol station used to launder some dodgy money) is scary. Executives at state oil producer Petrobras overpaid providers for a series of huge contracts in return for bribes. Some of the proceeds of the bribes were then passed onto prominent politicians. The unveiling of this complicated saga is ongoing, but so far, Petrobras has written off $17bn for corruption-related costs and inflated contracts.

But it’s not just the size of the scheme that’s scary. It’s also the fact that it goes right to the top. The CEOs of Brazil’s two biggest construction firms, Odebrecht and Andrade Gutierrez, are currently in jail facing charges. These guys manage billion-dollar companies and are highly respected business figures.

Rousseff denies responsibility, but as the then energy minister, she was chairwoman of Petrobras during the time when ‘Carwash’; was at its peak. Moreover, her party is accused of receiving $200m of funny money from the scheme.

The massive operation to weed out criminal elements in the country’s political and economic elites is also starting to impact the general economy.

As Neil Shearing from Capital Economics points out in a recent note: “The crisis has contributed directly to a collapse in construction and fixed investment, as companies implicated in the investigation have halted projects and Corporate Brazil more generally has been paralysed.”

It’s also weakening the government. Even if she avoids being impeached, Rousseff is increasingly looking like a lame duck – despite the fact that she’s at the start of her second term. She has an approval rating of just 8% – a record low for a Brazilian president – and is losing allies in Congress. This will make it even more difficult for her to solve the horrendous economic problems I’m about to describe below.

The perfect storm:

Of course, not all of this is Rousseff’s fault.

Economies are cyclical and it’s her bad luck that certain cycles are working against her now. The Brazilian consumer is maxed out, household debt levels are at record highs and credit can no longer sustain the country’s shopping boom. The commodity cycle is also going the wrong way, with prices of iron ore, Brazil’s biggest export, at five-year lows and falling.

Not that the Brazilian business elite cut her much slack. I was speaking to a Brazilian fund manager a few weeks back and he was scathing about the government’s economic policy. Interference, lavish subsidies and protectionism have all created huge distortions in the economy and hindered Brazil’s ability to react to events.

What’s more, Brazil isn’t coming into this downturn in a healthy position. The government’s budget deficit is running at 8% of GDP, while gross government debt stands at around 70% of GDP.

To her credit, Rousseff made some big changes at the start of her second term. New finance minister Joaquim Levy was poached from an investment bank and his hawkish determination to cut spending in a previous government earned him the nickname ‘Scissorhands’. But even Levy seems to be struggling to deal with this crisis, recently admitting that he won’t be able to produce the primary budget surpluses that he had promised for this year and the next.

And that’s why the ratings agencies are circling. S&P have put Brazilian government paper on a negative outlook. If the debt continues to grow – the most negative scenarios have it hitting 80% in the next few years – then Brazilian bonds will be downgraded to ‘junk bond’ status.

And as if all of that wasn’t bad enough, Brazil still looks no closer to solving its long-term structural problems. A creaking, chaotic infrastructure system and poor state education provision both hamper productivity. Meanwhile, a strong streak of protectionism is eating away at the international competitiveness of Brazilian companies.

So why would you want to invest in Brazil?

Given the economic nightmare I’ve just described, you may be wondering why on earth I want to invest in the place. The main reason is that Brazil is cheap. Its ongoing problems have brought the equity market to lows not seen since the Financial Crisis, giving us an interesting buying opportunity. To be honest I expect the situation in Brazil to get worse before it gets better, but things should start to pick up in 2016 or 2017.

Timing these things perfectly is impossible but as a medium to long-term investor, I like to get in when I see an opportunity and then wait it out. When you’re planning on investing for a few years you want to keep your costs as low as possible so in this case my favoured way to play it is an ETF – for example the iShares MSCI Brazil UCITS ETF (LSE: IBZL).

My own view is that the market is already pricing in the downturn and I want to have a position when the market starts to look ahead and rise on the hopes of a recovery in the future.

I first decided to buy into Brazil back in February and the market rose around 20% before falling back down to where it is now. If you bought in then hold on to what you have, but if you didn’t, now is another good time to get on board.

Of course, if you are feeling particularly clever, you could try to time it and wait to see what happens with the ratings agencies.

As Rafael Fonseca notes in the FT’s Beyondbrics blog, about a fifth of Brazil’s government paper is held by foreign investors. Many of them will be forced to drop it if it becomes junk because of the mandates of the funds they run. This would lead to a sell-off across Brazilian financial assets, which would present an even better buying opportunity. That’s a bit too uncertain for me though. I prefer to buy in now and leave it for a few years.

[loganair] 19/8/2015 12:14

Brazil ‘will shake off recession’:

Brasilia - Finance Minister Joaquim Levy said on Tuesday that Brazil will put recession behind it next year, refuting economists' forecasts the Brazilian economy will continue shrinking in 2016.

In an interview with Record TV network, Levy said the fiscal austerity drive that he is leading will be over by next year, and inflation should start slowing.

“Most of the adjustments have already been done. The Central Bank is controlling inflation. The Brazilian economy is diversified, agriculture is doing very well. We will not have recession and inflation should fall in 2015,” he said.

Brazil's economy is expected to shrink by 0.15 percent next year, following a sharp contraction of more than 2 percent forecast for this year, according to a weekly central bank survey of economists published on Monday.

Brazil has not faced two years of negative growth since the Great Depression of the 1930s.

The central bank survey also showed a slight increase in inflation forecasts for 2016, to 5.44 percent from 5.43 percent in the previous survey. Estimates for gains in consumer prices this year are at 9.32 percent.

Levy is leading an austerity plan aimed at reducing Brazil's fiscal deficit and restoring business confidence to revive the economy.

He said President Dilma Rousseff was putting her popularity at risk with the fiscal belt-tightening, but has no intention of giving in to calls for her resignation.

“Anyone betting on her resigning will lose, because Dilma is strong. She faces up and does what needs to be done,” Levy said.

[loganair] 19/8/2015 12:12

When it comes to Brazil I think we're getting close to Capitulation levels as it is all bad news and more bad news and nothing but bad news when it comes to Brazil.

[loganair] 18/8/2015 12:17

Brazil’s Political Crisis Puts the Entire Economy on Hold:

In Brazil, General Motors Co. has been halting factories and laying off thousands. Latam Airlines, the region’s biggest, is cutting flights. And the world’s third-largest planemaker, Embraer SA, is delaying its biggest new aircraft.

In the midst of its deepest economic and political crisis in a generation, Brazil is contending with a business climate so punishing that major projects across numerous sectors are being frozen or shrunk, while small businesses slash prices and shift focus.

“Political instability is enormous, and it’s paralyzing Brazil,” said Eduardo Fischer, co-chief executive officer at homebuilder MRV Engenharia & Participacoes SA, in an Aug. 5 interview. In Brasilia, the nation’s capital, “decisions and actions that need to be taken are being delayed, questioned or defeated, and nothing happens.”

Even luncheonettes are hurting:

Carambola’s, a juice and sandwich shop in Sao Paulo’s financial district, saw a 30 percent drop during lunch starting a couple of months ago. The corner store fired two employees, and closes earlier as customers stop coming in after-hours.

“People are bringing lunch from home,” Rafael Bruno da Silva, the afternoon manager, said on a recent day as a lone customer sipped coffee. “We’ve lowered the prices of juice, but it doesn’t seem to be making much of a difference.”

Kickback Scheme:

Opposition lawmakers and many in the public are calling for the resignation of President Dilma Rousseff, whose popularity has sunk to a record low. The senate and lower house presidents are being investigated in an alleged kickback scheme that funneled money from state-run Petrobras, the world’s most indebted oil company, to political parties in the biggest corruption scandal in history.

On top of that, the economy is forecast to contract 2.01 percent this year, inflation is above the central bank’s target and unemployment is at a five-year high. Brazil’s real is the worst-performing major currency in the world this year.

The crisis is reminiscent of the 1990s, when clerks were hired to re-sticker prices at grocery stores throughout the day because of hyperinflation. For others, it is a new and frightening experience.

“Younger generations haven’t lived through any volatility,” said Fernando Perlatto, a professor of sociology at the federal university of Juiz de Fora. “That contributes to uncertainty. People are cutting costs, not getting married, and such. At the university, we’re not booking any conferences, trips or academic events.”

Pork and Wine:

That means less business for airlines, where corporate demand has dropped by as much as 40 percent. Latam Airlines Group SA’s Brazilian unit, Tam, last month announced a major cut in seats and said Monday it’s planning its flights with “caution and flexibility.” Rival Gol Linhas Areas Inteligentes SA last week announced a decrease of up to 4 percent. Both have lowered prices in recent months.

Janaina Rueda, the owner of the popular downtown Sao Paulo steak restaurant Bar da Dona Onca, is trying a different tack. She is taking advantage of the availability of cheap labor and shifting her focus.

“We’re opening a place next door with a pork theme because it’s a much cheaper meat,” Rueda, 40, said. “I’m opening a business in the middle of an atomic bomb, but I did build the place for just 1 million reais, a third of what it would have been a year ago, because we were able to bargain down prices.”

Rueda doesn’t want to raise prices for her customers. She’ll tolerate breaking even for a couple of years until, she hopes, the economy turns around.

Andrea di Russo, manager at Zahil, an imported wine store, fears it won’t be just two years. So she is adding wine clubs and classes to boost income as she notes a change in the way her clients shop. At the high-end Emporium Sao Paulo supermarket, manager Edmilson Ferreira said he is negotiating deals with suppliers to offer sales on basic items in hopes that his clients will stick around to buy more-expensive goods.

“People are buying lower-cost wines because they’re worried,” Zahil said. “We’re trying to keep the prices as is, and hoping for the currency to stabilize.”

Delayed Payments:

Embraer, the best-selling regional jetmaker, had been counting on new products to boost revenue, including the KC-390, a military transport aircraft. The plane was supposed to be sponsored and purchased by the Brazilian government. Instead, Embraer, which is awaiting payment of $370 million, has delayed the production date by a year.

“I do not expect 2016 to be much better than 2015,” Chief Executive Officer Frederico Curado said in a call with analysts on July 30. “What we do not expect is new surprises like what we had this year.”

Brazil’s carmakers also have watched demand plummet, with sales down 20 percent in the first half of this year compared with the same period in 2014, carmaker association Anfavea said. Both GM and Volkswagen AG are temporarily shuttering factories and putting workers on leave. They declined to comment.

Soap Opera:

MRV, Brazil’s second-biggest homebuilder, isn’t moving ahead with many new projects as it awaits approval of additional funding for low-income housing, a cornerstone of Rousseff’s Workers’ Party. In May, the government announced that it was freezing billions of reais in spending, including 5.6 billion reais for the housing program.

“We need to get through this,” Fischer, the CEO, said. “Our goal today is to just get over this soap opera, or Brazil won’t move forward.”

[loganair] 12/8/2015 08:56

China's currency move will hurt one country more than any other By Linette Lopez

There is one country that stands to suffer more than any other from China's decision to devalue its currency - Brazil.

China is Brazil's largest export market, gobbling up 50 per cent of the iron ore, oil and other commodities that the South American nation sends around the world. The devaluation of the yuan threatens to lower the already record low prices of those commodities.


"Our commodity team has estimated that a 1 per cent move in CNY is associated with a 0.5-0.6 per cent decline in US dollar commodity prices," said Bank of America in a note following the yuan devaluation.

It's a blow to a country that is already in disaster mode.

At the car wash:


Imagine a country with an inflation rate of almost 10 per cent. It has a President with a 7 per cent approval rating. The country's GDP is set to contract 2.4 per cent in 2015. The home currency has lost a quarter of its value since the start of the year. There is a multi-billion government corruption scandal attacking the national psyche.

That country is Brazil.

It all started last summer with Operation Car Wash. The anti-graft campaign hit individuals at the highest echelons of Brazilian politics and business. Petrobras, the quasi-state oil company that had once been the jewel on Brazil's commodities crown, was at the center of the scandal.

The ruling party of President Dilma Rousseff was alleged to have been using Petrobras and its cash as a personal piggy bank to pay kickbacks and finance elections. Rousseff herself was meant to expose the years-long scandal.

Though Rousseff has yet to be accused of wrongdoing, others close to her have been arrested or charged. The operation revealed the multi-billion dollar waste at the company, and the stock price was cut in half.

Brazilians began to wonder if the confidence they had gained as a nation during the commodities boom was all a facade. Some even called for the return of military governance, hearkening back to the junta that ruled the country with an iron fist from 1964-1985.

Not even Scissorhands

Rousseff won reelection last fall.

Investors had faith in the newly appointed finance minister Joaquin Levy, who won the nickname 'Scissorhands' as a result of his propensity to slash budgets. The country's stock market as a whole started to reflect the new found confidence.

Some believed the Petrobras scandal was contained. The stock price started shooting up at the beginning of 2015.

That didn't last. Commodities prices started whipsawing in May, hurting the likes of Petrobras, and Vale, a producer of iron ore and other metals.

The devaluation of the yuan is only going to add to that pain. Petrobras fell 3 per cent on Tuesday, while Vale fell 6 per cent. That's no coincidence.

A hand, please?

Brazil will not be able to get out of this mess without China.

"External sector contribution was the main driver of previous economic recoveries. Strong growth in exports drove the recovery in four of the past five recessions," said a recent Credit Suisse report.

"We think the probability of a significant recovery in the next few quarters without a sound external sector contribution is low. "

China has been 50 per cent of that external contribution, but it is no position to help out right now.

Chinese demand has been slowing. The yuan devaluation is a dangerous move. It spurs capital flight, makes corporate debt more expensive, and upsets China's trading partners.

China wouldn't do this if it didn't have to.

Unfortunately it's also the last thing Brazil needs.

[loganair] 02/8/2015 10:44

Each year the share holders of JPB vote on whether to shut up shop or carry on. What worries me is this year the share holders may decide to shut up shop right when Brazil is at rock bottom, at the worse possible time when JPB is at their lowest share price, when in my good opinion is the time to buy.

I look at my investments in Investment Trusts as a long term investment, at least 5 to 10 years rather than short term Speculation.

If Brazil starts having some good governance and gets their financial house back into order, the current finance minister has a very good reputation, then I can see JPB share price doubling in 5 years.

[skyship] 02/8/2015 10:18

loganair - hopefully good governance will at some time come Brazil's way; but any investment there could continue to drain your capital for years and years before the eventual saviour arrives on the scene. (Today's share price = 45.0p-46.25p)

If you trust JP Morgan, then perhaps consider JPEL. Liberum f/c 27% asset growth over the next two years; and that could well ensure that the impressive share price growth continues...

[loganair] 25/7/2015 21:19

RIO DE JANEIRO, BRAZIL – The U.S. dollar ended this Friday (July 24th) selling at R$3.347 to US$1, an increase of R$0.051 (1.65 percent) on the day. The Brazilian real is at its lowest to the dollar since March 31, 2003, when the dollar closed at R$3.355.

In the largest gap of the day, around 3:40 PM, the dollar was being sold at R$3.354. The U.S. currency is up 7.66 percent in July and 25.89 percent in 2015 compared to the Brazilian real.

Since Brazil’s economic team announced yet another reduction of 0.15 percent to the GDP and the primary surplus target (saving to pay the interest on public debt), the dollar began to rise.

The forecast for the country’s GDP is sinking again after having stalled last week. Forecasts are now estimating a contraction of 1.7 percent. This would be the worst result for Brazil since 1990. In 2016, the GDP is set to grow by only 0.33 percent.

According to economists surveyed by the Agencia Brasil, the possibility that Brazil could lose its investment grade from credit rating agencies, have pushed the exchange rate even lower. Not even the statements of the minister, Joaquim Levy, were sufficient to remove the pressure on the currency.

“The market is still in an inertial motion with the announcement of new fiscal targets. We see a moment of continuing losses in the Ibovespa [Brazilian stock market] and the dollar rising. It’s a lot of risk aversion and investors are anticipating the possibility of such investment grade loss,” Raphael Figueredo, an analyst at Clear Corretora told OGlobo.

It has been a drastic change in currency values over the last five years, when in 2010 the Brazilian real (BRL) had soared to an annual exchange rate of R$1.66 to US$1. In March 2015, the real continued a downward trend that started in April 2014, falling sharply against the U.S. dollar.

[loganair] 24/7/2015 16:04

But the worst performing stock market this week, by a long chalk, is Brazil's. The MSCI Brazil index fell a whopping 6.7% in the week to Thursday, with losses on the country's Bovespa index exacerbated by a tumble in its currney, the real.

This week Brazil's government said it would slash fiscal savings goals for this year and the next, sparking fears the country could lose its investment-grade credit rating.

President Dilma Rousseff was re-elected last October despite having failed to balance the nation's books. That trend looks to have continued into her second term, leaving the beaten-up real - the chief problem for external investors - still looking vulnerable.

[loganair] 19/7/2015 09:28

JPMorgan Brazil nears 'rock bottom': time to go in? - by Gavin Lumsden:

Investment trust cuts dividend but pleads for investors' patience saying Brazil could bounce back after four years of losses.

Outside the UK and US investors are often wary of single country funds, disliking the lack of diversity they offer.

The experience of JPMorgan Brazil over the past five years suggests this is wise. Since its launch in April 2010 the investment trust has lost shareholders 45% of their money. After a good first year, it was literally downhill all the way for the unfortunate investors! In the last financial year the shares fell 12%.

Of course this has been a tough period for all funds investing in emerging markets with the slowdown in China and the consequent hit on commodities combining with fears of a capital flight to the US when interest rates rise.

Yet even the worst performing global emerging markets trust – Templeton Emerging Markets, which this week announced Mark Mobius would step back as its lead manager after 26 years in the job – has only lost investors 3% over that period.

It hasn’t helped that Brazil’s economy has been badly mismanaged by Dilma Rousseff, who was re-elected as president last October despite failing to balance the nation’s books or to invest in the infrastructure the country desperately needs.

Real disaster:

For external investors, Brazil’s main problem has been the collapse in its currency, the real, which has destroyed shareholder value in sterling terms.

By contrast, in local currency terms the fund’s net asset value grew by nearly 13% in its first five years. Nevertheless, this is an unimpressive return and moreover it lagged the MSCI Brazil 10/40 index which the trust uses as its performance benchmark.

Clearly stock selection by the managers, Luis Carrillo and Sophie Bosch De Hood, has been poor, which the trust admitted in its full-year results this week, saying that in future they will avoid the largest state-backed companies ‘which are unduly subject to political influences’.

This is a reference to Petrobras, the state-owned oil producer, which previously accounted for 10% of the fund’s assets. lts shares fell 39% in the past year after a corruption scandal.

After a review the board, chaired by Howard Myles, has got the managers to go back to basics and focus on ‘companies which will benefit over the long term from the growing middle class and the rise in consumer expenditure’, ie, just the kind of stocks long-term investors in emerging markets want exposure to.

Too little, too late?

Is the board’s action too little too late? This poor trust looks to be on the ropes, slashing the annual dividend to 0.4p from 0.85p per share (although admittedly income was never a big draw for a fund that was meant to be about growth).

Its net assets have more than halved to £26 million in four years which means the trust’s fixed costs take an increasingly large slice of the pie. To counter this, the trust has told JPMorgan to reduce its 1% annual management fee by as much as is necessary to ensure total ongoing charges don’t exceed 2% a year. (Most equity trusts charge between 0.5% and 1.6% a year).

There are two things that impress me about JPMorgan Brazil, however.

One is the surprisingly small 5% discount on the shares. Normally, you’d expect a dud like this to trade way below net asset value. To its credit the trust has been active in buying back shares (which is one reason why it has shrunk in size) in order to keep the discount in check. It is also required to consider a tender offer to buy back up to 15% of the shares if the discount averages at more than 5% for 30 days.

Lastly, a continuation vote in September next year means shareholders know they have an exit if they want it, which also curbs the temptation to sell.

Plea for patience:

Will shareholders want to call it a day in 14 months’ time? No doubt the looming vote was in the managers’ minds when they wrote, ‘We believe we are nearing rock bottom’, which is effectively a plea for investors to be patient.

Things are still bad in Brazil but the managers say that if the country’s new finance minister Joaquim Levy, a Chicago-educated former US Treasury secretary, is allowed to unwind Rousseff’s previous mistakes then consumer and investor confidence could return.

They point out that the painful currency devaluation has left Brazil’s stock market at fair value, yielding around 4% in dividend income instead of the usual 2.5%. ‘Brazil is home to many well-run companies with valuation no longer being a concern for the medium term,’ they said.

So is this a chance to buy into Brazil when it’s a bargain? It could be. If you’re an early bird the advantage of the clouds hanging over Brazil’s economy is that they discourage other investors.

Of course, we've heard managers of mining and commodity funds claim that their upturn is just around the corner for two years now.

Who knows what will happen? I’m still not convinced that a single country fund is a good idea, but if you are attracted to the idea of Brazil, here are some other funds that include exposure to the country, among other things in more diverse portfolios. Outside of the Latin America sector, the one with the biggest involvement in Brazil is Hansa Trust, an unusual global fund that owns Wilson Sons, a Brazilian shipping company based in the Bahamas. You can read more about Hansa in a special report on 'dynasty' funds we published in December.

[loganair] 14/7/2015 23:40

Outlook:

Brazil is going through a period of pain as the distortions introduced by the first Rousseff administration are unwound. However, as long as Levy's current trajectory is maintained, we expect the economy to return to healthy growth. We believe we are nearing rock bottom, and that confidence could pick up later in the year. In the short term, we expect unemployment to continue to rise, with a knock-on effect on consumption. Importantly, though, rising unemployment is in part driven by rising participation in the workforce - a sign of improving sentiment.

Looking ahead we view the currency as a neutral factor for sterling investors. The Real had looked expensive against the US dollar, so the depreciation, though painful, was necessary. We believe the Real at R$3.2/USD is fairly valued but we could continue to see short term volatility.

Brazil is home to many well-run companies with valuation no longer being a concern for the medium term. Following the weakness in the currency over the last couple of years, we believe it is now fair value and we do not see significant downside risk. The yield of the market is around 4% compared to the usual 2.5% and we believe the market expectations of earnings are much more reasonable now. We are much closer to the moment where the companies begin to see the virtuous cycle of increase of capacity utilisation and improved operating leverage translating to earnings growth that should translate into investment returns but the economic environment continues to be difficult. Investing in this challenging environment requires fund managers to be selective and more demanding on valuations, particularly in sectors that are facing currency or policy headwinds. We believe the clear tilt in our strategy towards quality companies with strong cash flows helps to mitigate the risks.