What is wrong with Brazil? That is the question I asked back in October in this blog. Today’s question for investors should be “Is Brazil getting better?” We at Chevy Chase Trust perceive that at long last, change may be in the making for this South American giant.
In addition to a slow growing economy and an underperforming stock market, per my October blog the Brazilian government implemented some investor-unfriendly policies. Its continued interference with private sector banks is detailed in an article in The Banker: “How will Brazil’s private banks see off multiple challenges?” It seems, though, that President Rousseff is beginning to appreciate there may be a problem and is taking steps to alleviate investor concerns and stimulate economic growth. Notably, President Rousseff held a series of one-on-one meetings with 11 of Brazil’s business leaders. In a Bloomberg News report, Rousseff’s outreach was designed “to reverse a slide in sentiment that’s behind the world’s third-worst stock slump.” In addition to the investor meetings, the administration also increased gasoline prices by 6%, a move that benefits oil companies, such as Petrobras, by improving their profit margins. The sum of these moves may be, as Chevy Chase Trust pointed out in “Brazil’s risk premium is shrinking,” that the Brazilian government is aware of its credibility gap with investors and is working to fix it.
So is it an “all-clear” signal for investors to jump in to Brazil? We think not. But Rousseff’s efforts to improve policies is an important, and much-needed, first step for investors.