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Why Brazil Has Been Outperforming Global Indexes in 2017

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Apr. 25 2017, Updated 6:39 a.m. ET

Brazil’s market performance

The MSCI Brazil Index (EWZ) is set for additional gains in 2017, equally impressive as 2016. The BC-Br index of economic activity in Brazil rose 1.3% in February 2017 compared to a rise of 0.62% in January 2017. Brazil’s economy seems to be improving in 2017, as the BC-Br index of economic activity in February posted the strongest growth since January 2010. Let’s look now at equity performances compared to the global indexes.

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Brazil’s comparative performance

As Brazil’s economy shows signs of improvement, international investors seem to be rushing to gain from the better outlook for 2017. The FDI (foreign direct investments) estimate for 2017 is about $85.0 billion. Alberto Ramos, the head of Latin American economic research at Goldman Sachs, said, “The very large upward revisions to the January retail sales and services sector data, allied with the expected large expansion of the agricultural sector gives us confidence that after an 11-quarter-long recession the economy has reached an inflection point.”

Improved economic activity seems to have increased consumer confidence, thereby benefiting the equity markets. Some of the reasons for the surge in Brazilian markets include the following:

  • emergence from a severe and protracted recession
  • diminished political uncertainty
  • rising business and consumer confidence
  • soild investments

In spite of lower growth in the last quarter of 2016, the outlook for 2017 seems to be bullish for Brazil’s economy. However, the US economy is showing signs of a slowdown as consumer prices fell 0.30% in March 2017, marking the biggest fall since January 2015. Retail sales also fell 0.20% in March 2017, remaining below expectations.

The iShares MSCI Brazil Capped (EWZ), which tracks Brazilian stocks, continued to provide attractive returns of ~9.0% in 1Q17. The Eurozone (EZU) and China (FXI) posted rises of ~8.0% each in 1Q17. The United States (SPY) was the bottom performer among the peers mentioned above, with a rise of about 5.0% following Japan’s (EWJ) rise of ~6.0% in 1Q17. US investors seem to doubt President Donald Trump’s ability to implement his policies after the failure of the healthcare replacement act. Subdued performance followed in 1Q17.

In the next and final part of this series, we’ll look at the rapidly falling inflation in Brazil and what the impact might be.

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