Since the beginning of January, the emerging bonds classified in JPMorgan’s EMBI Global Diversified index for emerging market bonds have increased by 3.3%. Emerging market’s average dollar-denominated debt decreased from November’s high of 6.3% to 5.7% last month.
The opportunity lies in buying emerging markets while they are cheap. Whitney Baker of Totem Macro stated that they are “dirt cheap” at the moment. Investors should look to invest now while they can be bought cheap. Brazil is one such market that many should consider investing even. Mark Mobius of Mobius Capital Partners stated that investors should consider purchasing stock in Brazil since the country has had a “terrific recovery” since last year.
With the recent election of Jair Bolsonaro as president, many on Wall Street are beginning to invest in Brazil. Rising 8.5%, the Bovespa index has reached an all-time high since the year started, while the iShares MSCI Brazil ETF, increased over 12%. The country is doing very good against other EM’s ETFs with Mexico trailing behind at an increase of 8%.
The positive uptake in numbers is thanks to the new president and his stance to take on key financial reforms. A large part of his platform was to change pension age and benefits. He looks to increase the retirement age for both women and men by two years. The current retirement age is what lead the country to massive debt with there being too much of a burden on the current pension system. He also looks to roll back certain pension benefits. 91% of responders of a survey by Bank of America Merrill Lynch stated they believed the reform would be completed within 2019.
If this is seen, we can expect more investors to take part in that emerging market. 68% of investors that were asked by Santander stated that they believed that Argentina would be a Latin America equity top performer.
In addition to what is happening in Brazil, The US Federal Reserve is expected to slow their rate hikes. This will help all emerging markets and will be a nice addition to Brazil’s already good recovery. Brazil’s currency ended their three-month high but is projected to post a weekly gain.
Investors who are interested in Brazil are now watching to see what the newly elected president will do moving forward. If he moves forward with the financial reforms that he promoted on his campaign, those that invested earlier will see the benefits.