Share Name Share Symbol Market Type Share ISIN Share Description
Jpmorgan Brazil Investment Trust Plc LSE:JPB London Ordinary Share GB00B602HS43 ORD 1P
  Price Change % Change Share Price Bid Price Offer Price High Price Low Price Open Price Shares Traded Last Trade
  -0.50 -0.72% 69.00 67.00 71.00 69.75 69.00 69.75 45,824 10:24:00
Industry Sector Turnover (m) Profit (m) EPS - Basic PE Ratio Market Cap (m)
Equity Investment Instruments 0.9 0.4 1.0 69.7 26

Jpmorgan Brazil Investment Share Discussion Threads

Showing 76 to 96 of 400 messages
Chat Pages: Latest  4  3  2  1
DateSubjectAuthorDiscuss
10/11/2015
00:36
loganair - I am getting interested in this investment trust - nothing goes down for ever and great potential in Brazil - developing middle class etc. May have already bottomed.
gargleblaster
09/11/2015
19:56
Brazil could begin to exit its worst recession in three decades by moving forward with its fiscal adjustment, according to a report from the OECD. The report said that Brazil could put its economy back on track by countering fiscal challenges with the necessary adjustments to bolster public finances, restore the market's confidence and prepare for an aging population. "Progress must continue on the fiscal and monetary fronts. Ambitious structural reforms are urgently needed to close the productivity gaps with other leading emerging economies while ensuring all Brazilians can share the fruits of prosperity," OECD secretary general Ángel Gurría was quoted as saying. Among other changes the OECD suggested is a reform to simplify Brazil's tax system. It also projected inflation to reach 9.4% at end-year, but to fall to 4.9% in 2016 if the government succeeds in its effort to have fiscal reform approved. This year could be a turning point, the organization said in its report.
loganair
31/10/2015
20:20
More Pain Ahead For Brazil? By Professor Carlos A. Primo Braga on on the economic, political and psychological drivers of Brazil's currency slide. Real Depreciation in Brazil: What a difference a year makes! For visitors to Brazil, a steak lunch in a top restaurant would have cost USD $120 in October 2014 (not including caipirinhas or wine). Today the same meal costs roughly USD $65. The Brazilian real has experienced one of the most dramatic depreciations among currencies from emerging economies over the last 12 months. The good news is that this adjustment will help the tradable sector of the economy improve its international competitiveness. For an economy which is currently in free-fall (with an expected GDP contraction of roughly 3% in 2015), this is most welcome even though the low exposure of the Brazilian economy to international markets implies that this help will be at best moderate in terms of its macroeconomic impact. The bad news is that this will add to inflationary pressures and it will also impact the financial health of corporations that have borrowed abroad. International Depreciation Trends: Over the last two years, many countries have experienced significant movements in the value of their currencies. As discussed in detail in the latest World Economic Outlook of the IMF (October 2015), these changes have often extrapolated the range of historical adjustments experienced by major currencies. Among industrialized countries the US dollar and the Swiss franc have appreciated more than 10%, while the Japanese yen has depreciated more than 30% in real terms (since mid-2012). Many emerging economies have also experienced significant depreciation of their currencies. The Brazilian real - which was identified by Morgan Stanley in 2013 as one of the so-called fragile five (a group that also included the Turkish lira, the Indian rupee, the South African rand, and the Indonesian rupiah) - has depreciated more than 35% in real terms since 2014 against a basket of relevant currencies of major trading partners. Actually, with the exception of the Indian rupee, the currencies of the other members of the "fragile five-club" have been among the worst performers among emerging economies currencies over the last two years. Currency War Irony: It is ironic that Brazil, which as recently as 2010 had warned about the dangers of a "currency war" - reflecting concerns about interventions by major monetary authorities to limit upward pressures on their currencies in an effort to boost net exports - is now leading the "contest" in terms of global depreciation trends. First, the current political gridlock associated with the tug-of-war between the Executive branch and Congress, amid the reverberations of the Petrobras corruption scandal, does not help. There is not only a crisis of governance, but also a crisis of ethics. The logic of the mob seems to be leading the country to the lowest common denominator for ethical behavior in the absence of credible leadership. Needless to say, this creates a field day for speculation against the real. Second, the international environment does not help. This goes beyond the implications of the Chinese slow-down for Brazil. In reality, the current crisis provides another illustration of the behavior under stress of complex financial networks. The triggering event may be small in macroeconomic terms - e.g., the losses associated with the Petrobras scandal - but resulting collateral damage can be substantial, particularly, when the external environment suggests that in the near term additional headwinds will impact the country (for example, the expected increase of US interest rates). In short, markets tend to overshoot in their expectations about the future of a currency under stress. There is, however, a silver lining. Economics does not stop operating below the Equator. As already mentioned, the depreciation of the real is impacting the tradable sector in a positive manner. Actually, the depreciation, combined with the slow-down of the economy, has translated into a substantial decrease in the Brazilian current account deficit (by roughly 30% compared with last year). Moreover, Brazilian assets are becoming increasingly attractive to foreign investors. In sum, no foreign exchange crisis is expected in the near future. But the economic crisis and the fate of the real will continue to be driven by the political imbroglio. In other words, more pain ahead.
loganair
17/10/2015
18:49
At some point in the next couple of years Brazil will come out of recession and in my good opinion any investing now will make a hansom profit on their investment.
loganair
16/10/2015
16:44
investors junk Brazil as Shanghai soars - Credit rater Fitch prompts investors to ditch Brazil stocks, while China's stock market rebounds. Last week's dramatic reversal of fortunes for emerging markets has proved all too brief for Brazil, after it was dealt a rude awakening by its latest debt downgrade. Rating agency Fitch this week spared Brazil a 'junk' rating, but only just, cutting the country's debt rating to BBB-. That follows Standard & Poor's downgrading of Brazil's debt to 'junk' status in September. Inflation in Latin America's largest economy has rocketed to 9.5%, while economists are forecasting the longest recession since the 1930s. That has added to the pressure on president Dilma Rousseff (pictured), who faces the prospect of impeachment proceedings after a court ruled she broke the law in her management of last year's budget. Brazil's beaten-up real currency took another tumble in the week to yesterday, leaving investors nursing a 5.5% loss in sterling terms. The country's problems buck the broader emerging market recovery, which continued this week, albeit not at the same pace as last week's rally.
loganair
11/10/2015
19:07
Brazil's Rousseff says looking at ways to open economy: Oct 9 Brazil's President Dilma Rousseff said on Friday she believes the country's economy is still too closed to foreign trade and that her government is looking at ways to open it to other countries. In a speech to business leaders in Bogota during an official visit to Colombia, Rousseff said expanding trade with South American nations would be a natural course for Brazil, because countries in the region share characteristics that favour integration.
loganair
11/10/2015
19:05
Possibly the low was the 31p reached a couple of weeks ago!
loganair
10/10/2015
22:42
WHERE is the bottom here?
gavinbell
10/10/2015
19:12
Brazil - Good Buy Or Goodbye? by Colin Lloyd: Summary •The Bovespa is down 35% in US$ terms this year. •Government bond yields are back to levels last seen during the crisis of 2009. •The BRL has declined by 45% against the US$ during 2015. •Bond agency downgrades and government inaction exacerbate the sense of crisis. When I last gave a speech about the Brazilian economy and stock market prospects, back in March 2014, I was optimistic. During the summer of that year, the Bovespa rallied, USDBRL improved, and Brazilian government bond yields declined, but by early September, these nascent trends had lost momentum. It is worth remembering that, despite the importance of commodities - and coffee made fresh lows for the year in September - the largest contributor to Brazilian GDP is services (67%). During the second half of 2014, inflation remained broadly stable at around 6.75%, but, as the BRL weakened, inflation picked up sharply forcing the Bank of Brazil to raise interest rates, meanwhile the government's primary budget surplus evaporated: In May 2015, I wrote about the prospects for Brazil and Russia - once again, I was anticipating the rebound in commodity prices coming to the aid of these commodity exporters - yet again, I was premature. The economic slowdown in China continues, commodity exporting countries remain under pressure and, from a technical perspective, the GSCI appears to be heading back to test the 2009 lows. My conclusions about Brazilian real estate have become slightly more negative since May. The recent increase in domestic inflation, combined with a rise in unemployment, makes rental yields - ranging from 4% to 6% - less attractive. Real yields have grown more negative whilst rental arrears and defaults rise. No way out? In a recent Bloomberg Op-Ed - The Anatomy of Brazil's Financial Meltdown - Mohamed El-Erian proposes official "Circuit-Breakers" to stop the vicious cycle. Peterson Institute - A Non-Circuit Breaker Agenda for Brazil - disagrees: “ What are the options for Brazil? With interest rates at 14.25 percent, there is unfortunately little room for further rate hikes. With short-term domestic rates at these levels and global interest rates at close to zero, one would be hard pressed to argue that remedies used in the 1990s-specifically abrupt interest rate hikes of a high order of magnitude-would make a big impact on reversing capital outflows. If market pressures continue unabated and exchange interventions are ineffective, Brazil might well need to resort to capital controls. A further credit downgrade might follow, and the stage would be set for the type of inevitable crash that many economists imagined they would no longer see. While a crisis cannot be fully avoided-arguably, it is already happening-the government could still take some action to instill confidence. A strong commitment to prudent fiscal management over the medium term might help attenuate market turbulence even if the government's hands are tied in the short run by political dysfunction. Instituting debt limits as discussed above would be a good start; Poland's experience is testament to how fiscal credibility can be enhanced through their adoption. In Brazil's case, debt limits have an additional advantage: They would send the right medium-term signals without being as overtly unpopular as the other measures and reforms the country desperately needs. "Circuit-Breaker" policy proposals and the spectre of capital controls are unlikely to stem capital flight in the near term, but with EM exposures already back to 2009 levels, I believe we're nearer the end than the beginning of the repatriation process. Conclusions and Investment Opportunities: For investment to return to Brazil, repatriation of existing investment needs to run its course, corporate bond defaults need to peak and begin to improve, unemployment needs to rise and then begin to decline and the government needs to prove it has the resolve to adhere to a policy of real austerity. Currency: The BRL is the weakest it has been in more than 20 years, it last approached these levels back in October 2002. Foreign Exchange reserves remain high, I would expect the markets to test the central bank's resolve. Further currency weakness certainly cannot be ruled out. Stocks: According to BlackRock investors, outflows from EM ETFs in September exceeded $3.2bln, albeit, sentiment has improved over the past week. The EM's stock market performance for the year to October 6th; Brazil has suffered more than every country except Greece. For the contrarian investor, this may present an opportunity to buy - personally, I would prefer to see some indication of government resolve to tackle the country's difficult domestic economic issues first. Next year, Brazil will host the Olympic Games - this is an opportunity to push through unpopular policies and showcase all the reasons to invest in Brazil. It is always darkest before the light - I shall be watching closely.
loganair
07/10/2015
17:53
Is the tide beginning to turn for emerging markets? by Daniel Grote. Investors are pulling out of emerging markets in record numbers after a grim two years, but some argue now is the time to buy. If you believe the adage that things need to get worse before they can get better, then emerging markets are certainly fulfilling the first half of that maxim. Emerging markets have been a grim place to be since the tide turned firmly against them in 2013. After a strong rally after the financial crash, they have endured a torrid two years against the backdrop of the US winding down quantitative easing, or dollar printing, and China's economic growth slowing. And there have been few signs of a turnaround on the horizon. The prospect of the US raising interest rates, and the hit emerging markets would take from the hike, has weighed on investors' minds throughout the year. Even the US's failure to raise rates last month, surprising some commentators, did not provide any respite. Investors instead fretted over the reasons for the Federal Reserve's lack of action, fearing prospects for global growth were even worse than had been thought. Again, emerging markets were the big losers. Investors have voted with their feet. Emerging markets are set to suffer a net outflow of capital this year for the first time since the financial crisis, according to the Institute of International Finance. But just as it appeared things could not get any worse for emerging markets, sentiment appears to have turned. They led the running last week, and continued their rebound in the last few days. Contrarian 'buy' Now analysts at investment bank Morgan Stanley, who are not shy of making big market calls, are proclaiming this is the time to buy emerging markets and commodity-related stocks. 'The heavy consensus positioning to favour developed markets over emerging markets is likely to be challenged in the fourth quarter as better China news flow improves sentiment towards emerging markets and commodities,' they said. 'We recommend investors raise their exposure to emerging markets / commodities given the combination of very low sentiment, attractive relative valuations and a likely inflection in macro sentiment.' A crucial flank of their argument is that China, the main driver of emerging market – and wider global market – falls during August's downturn, should provide investors with some good news throughout the rest of the year. 'The real kicker for equity markets is likely to be signs that China's economic activity is not as bad as feared (given this is the epicentre of investor concerns about the global economy),' they said. 'In fact, our economists believe macro momentum in the country could actually start to show some improvement in the coming months in response to a faster pace of new policy initiatives.' Just as importantly, they don't expect investors to be subject to the same level of policy uncertainty from China that proved to be the undoing of markets in August. Investors were thrown in a panic when China devalued its currency, reported weaker growth figures and fought rampant stock market volatility, culminating in the spectacular falls seen on 'Black Monday'. China's policy mess: Stephanie Flanders, former BBC economics editor, who is now chief market strategist at fund group JPMorgan Asset Management, believes it was the 'cack-handed' manner in which the Chinese authorities reacted, rather than the policy moves themselves, that worried investors. 'Did it suggest [the authorites] were not going to be able to handle the challenges China faces? I think that was what panicked people,' she told a conference in London yesterday. Morgan Stanley agreed that this uncertainty over policy 'had at least as big an impact on investor sentiment as the underlying economic data'. 'Going forward, the recent step-up in policy announcements from the government, coupled with less volatility in equity and foreign exchange markets and the forthcoming decision from the International Monetary Fund on the yuan's inclusion in the [special drawing rights basket of currencies] should hopefully allow for policy uncertainty to start to normalise,' they said. And the analysts also see encouraging signs on earnings from emerging markets companies. These have been in decline, but Morgan Stanley has pointed to what it believes is the trough in the emerging markets 'earnings revisions ratio' – the net number of analyst upgrades, expressed as a proportion of the number of forecasts – versus that for developed markets. If Morgan Stanley is right, an upturn in emerging markets could catch a lot of investors unaware. 'Any improvement in sentiment toward emerging markets is likely to have serious ramifications for investors given the extreme level of positioning we see across markets, whereby investors are underweight emerging markets and commodity-exposed areas,' they said. Consensus could be caught out: Professional investors are just as likely to be caught out. The analysts point to the strong performance of UK funds – where 88% have outperformed over the last 12 months – as evidence they have largely shunned the UK market's heavy weighting towards emerging markets-sensitive commodity stocks, which have acted as a drag on the FTSE 100. Emerging markets funds have meanwhile suffered 14 consecutive weeks of outflows, and the analysts argued that 10 weeks of outflows was usually a contrarian 'buy' signal. Emily Whiting, emerging markets portfolio manager at JPMorgan Asset Management, argued a reversal of these flows could by itself help to revive the sector. 'Flows can drive emerging markets as much as fundamentals,' she said. 'Investors are underweight emerging markets more than ever since the financial crisis.' She argued that a reversal of outflows was a more likely immediate catalyst for improving returns than improving earnings. 'You're more likely to see that than earnings picking up,' she said. 'It [wouldn't] mean [investors] like emerging markets, they just don't want to be as underweight as they are at the moment.' And she claimed a hike to US interest rates, long feared for the impact it could have on emerging markets, would help to remove uncertainty. 'We just want them to raise – it's the worst kept secret ever,' she said. 'It's worrying investors and causing them to sell out.' 'It is built in [to prices] and understood. We just want them to raise it, everyone will realise the world hasn't ended, and we'll carry on.'
loganair
01/10/2015
12:35
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.
loganair
01/10/2015
11:12
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...
votiem
30/9/2015
09:19
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.
loganair
30/9/2015
07:24
So Logan. Have you suspended buying until you sense the bottom has been reached?
votiem
29/9/2015
09:26
Wow so JPB could sink even more... has to be a bottom... 25p?
votiem
28/9/2015
08:24
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
19:39
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
09:18
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
08:39
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
21:51
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
20:55
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
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