From an investment perspective, Brazil appears no more enticing now or for the period immediately ahead than it did three-to-six months ago given the potential for a further worsening of the macroeconomic outlook. Having reviewed the economic situation anew, Global Markets Intelligence reiterates its recommendation of underweighting Brazilian equities compositely for the remainder of this year and early 2015. We await the outcome of the presidential election run-off on October 26 to receive greater clarity about the policy atmosphere in the wake of the final leg of the vote. While Neves would seem to offer the best hope for a full recuperation of the Brazilian economy in the coming years, we remain pessimistic about the prospects for the immediate future. Nevertheless, investors – who have strong risk appetites – are urged to focus their investments on infrastructure-dominated shares of the IBOVESPA.
Crucial challenges lie ahead for all three Brazilian asset markets in light of the deteriorating economic climate at home and abroad. Worsening patterns in economic fundamentals on several fronts will present a tremendous obstacle to whoever is elected president in the October 26th run-off between the incumbent, Dilma Rousseff, and Aecio Neves, who astonishingly finished second in the first round of voting last Sunday. Still, no matter who wins the second round later this month, the cruel reality is that the real economy is in decline and the victor will need the most persevering negotiating skills to navigate his or her policy agenda through a highly fragmented legislature for it to succeed in getting enacted.