EM by EM - Time to buy Brazilian govies?
Lat-Am expert Emil Moller, our new Chief Analyst, looks into EM on a bi-weekly basis in our brand new series. Can we find pockets of terrific value in EM during a global recession?
No bank crisis in Brazil because banks down there know the importance of interest rate risks unlike in Silicon Valley. Are Brazilian bonds a place to hide if the economic cycle turns negative in coming quarters? It is hard to find a place on earth with better real yields to lock in at least.
The attentive reader would already have noted the difference in the respective real rates in the chart. While savers in the US have been punished, and still are catching up to inflation- Brazil currently offers terrific real rates. In an environment where every PM is trying to justify receiving payments for stashing their investor’s money in low-yielding treasury bills, some EM’s offer decent r/r opportunities. Long EM (widely speaking) was a consensus trade coming into 2023, but Q1 has not been particularly generous to this view as the economy and consequently, the USD kept up through February and March.
If indeed we are on the doorstep of a FED easing cycle and Equities remain in the clouds, some more exotic locations might provide some cover. Brazil being notoriously sensitive to commodities will of course suffer in the event of further weakness in key export prices and a subsequent global recession, but with close to a world record in real yields it would provide a decent bull case if rates reverse along.
This was a small extract of our new series EM by EM (Emil Moller, our new Chief Analyst). Emil has extensive knowledge from Latin America and is also an avid China follower and we will hence ramp up markedly on the EM coverage with the signing of Emil Moller. We have got you covered on everything G10 and EM from now!
Find the entire piece on Brazil right here → https://stenoresearch.com/emerging-markets/ and use “crisis20” to get 20% off your subscription.
Remember that the first 14 days are on the house.
Happy Easter to all of you!
Why do you want to invest in a country that just elected a convicted felon who already ruined the country once and is well on his way to do it twice? Macro numbers don’t tell the whole story, there is no free lunch.