Fund Managers Are Bullish on Brazil, Here’s Why

In a recent survey by the Bank of America Merrill Lynch, more than 77 % of fund managers said they expect Brazilian stock prices to shoot up in the next 6 months.

Brazilian stocks
Traders at the Sao Paulo Stock Exchange.

Fund managers are increasingly betting on Brazilian stocks, as the Latin America’s largest economy shows signs of recovery boosted by low inflation and low interest rates.

In a recent survey by the Bank of America Merrill Lynchmore than 77 % of fund managers said they expect Brazilian stock prices to shoot up in the next 6 months, according to Citywire.  Further north, investors are wary of Mexico, because they think President Andrés Manuel López Obrador, or AMLO, may come up with ‘unpredictable’ policy decisions.

More than 90% of respondents are of the belief that Brazil’s benchmark Bovespa index would touch 110,000 mark by the end of the year. The index has jumped 18% so far this year.

Brazil has not completely crawled out of recession, but macroeconomic indicators are looking positive: inflation is running low and bank interest rates are moving downwards.

Moreover, the government looks determined to reform its pension system as part of reducing fiscal deficit.  Pension costs currently represent 55% of primary government spending, according to reports. In addition, the country’s Finance Minister Paulo Guedes has promised to cut tax rates and support companies struggling to raise cash for business expansion.

Analysts at JP Morgan Chase are also bullish on Brazilian equities, according to Bloomberg.

With the real, Brazil’s currency, continuing to rise against the US dollar, investors are hopeful that the central bank would cut the interest rate by at least 50 basis points by the end of this year.

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