Two articles in Bloomberg give somewhat opposing views of Brazil today. One quotes Tempelton fund manager Mark Mobius describing Brazil as "one of the world's most exciting markets", and the article cites recent activity such as interest rate cuts in response to the European crisis, as well as the relatively weak Brazilian real, which has boosted industrial production, to justify the excitement. Interestingly, these are temporary effects - the real could well strengthen again after the global crisis matures, and interest rates still need to take inflation targets into account - yet Mr. Mobius seems to favor Brazil for it's long-term potential.
On the other hand, Bloomberg also released the results of its first-ever ranking of the "most promising" emerging markets, which ranks countries by projections 2012-16 GDP growth, inflation and government debt, while also taking into account exchange rate volatility, the price/earnings ratio of its stock market, and the ease of doing business. Brazil's place on the list? Number 16, which incidentally is one spot too low for it to appear in the available database, which lists only the top 15 countries. Brazil lags behind not only India and China and a number of other Asian countries, but also a good portion of Latin America, including Peru, Chile, Colombia and Mexico.
It's not difficult to imagine what tripped Brazil up, despite its absence from the list. Inflation is under control but still significant, and while growth was strong in 2010, the European crisis provoked a considerable slowdown in growth last year, and estimates for 2012 growth are similarly mediocre at 3.3%. The exchange rate is also a constant worry since the advent of the crisis in 2008, with a strengthening real constantly threatening the country's exports. And of course, the country regularly gets massacred in rankings of ease of doing business.
I have no idea about the price to earnings ratio of the Bovespa, but a quick look around Google seems to indicate that it hovers around 13, which would make it about average for the top 15 emerging markets group. And the goodish news? Government date is currently low! Though that could change soon, as President Dilma tries to balance worker demands and strike threats with the budget cuts smaller than what economists are calling for.
The verdict? I'd say Brazil at number 16 sounds about right. It may have good long-term potential, but a lot of countries are in even better positions right now.
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