Brazil reclaims status as an emerging-market darling among investors amid new leadership
Jens Nordvig, founder of Exante Data, said Brazil’s economy should be growing much faster after its collapse in 2016.
“They just had the biggest recession literally in the history of economic statistics. Coming out of a recession like that, you should have like 4, 5, 6, 7 percent growth for a number of years and they just have not had that,” Nordvig said, adding this goes back to some of Brazil’s structural issues, including an overcrowded pension system.
Brazil’s current retirement age is 60 for men and 55 for women. This has led a massive fiscal deficit in Brazil.
But Bolsonaro’s election has increased bets that Brazil would be able to reform the country’s crippling pension system. More than 91 percent of investors surveyed by Bank of America Merrill Lynch believe pension reform will be done in 2019, with one third of respondents expecting it to be approved in the first half of the year.
The newly minted president has already suggested hiking the retirement age to 62 for men and 57 for women. He has also issued a decree that rolls back some benefits.
Investors are also expecting Brazilian shares to build on their hot start to 2019. Sixty-eight percent of investors polled by Santander expect Brazil to be the top-performing country for Latin American equities.
Brazilian stocks are expected to get a boost from a slowdown in rate hikes from the U.S. Federal Reserve, which is also expected to boost broader emerging markets. They are also expected to benefit from a privatization and deregulation push by the Bolsonaro administration.
“Inflation expectations have moderated and the perception of a dovish Fed strengthens the case
for [the Brazilian central bank] to stand pat,” strategists at MRB Partners wrote in a note earlier this month. “The new government’s bias in favor of privatization and smaller government will support a re-rating in a number of listed state-controlled enterprises.”