Making money: what the experts think
Great escape
“When the world’s biggest fund manager reverses its view on half of the global economy, it is time to take notice,” said the FT. “Once negative on emerging markets”, Blackrock, which manages some $4.6trn of funds, has “turned into a cheerleader”. The firm’s fixed income expert, Sergio Trigo Paz, talks of “a great migration” away from the stagnant growth and negative interest rates of the developed world, to the enticing yields of emerging markets. Sentiment has certainly warmed since the recent “bout of panic” over China. “EM as a whole is about to post its strongest GDP growth in four years,” said Commerzbank’s Peter Kinsella. But that growth comes from “a shrunken base”. Indeed, “a big part of the upturn is not due to things getting better”, but to them “no longer getting worse”. Big economies such as Russia and Brazil, in deep recession for two years, are finally returning to growth.
Olympic torching
The Games have just begun in Rio, but “Brazilian stocks have been sprinting for much of the year”, said Justin Lahart in The Wall Street Journal. The Bovespa index is up 33%, with Olympic-related stocks racing even higher. But the stock market experience of previous Olympic hosts suggest “the gains could be short-lived”. “Anyone tasting the thrill of victory in Brazil’s stock market could soon be feeling the agony of defeat.” That’s a familiar sensation, said Ian Cowie in The Sunday Times. Latam funds have delivered dazzling returns of 50% in the past six months, but their five-year performance has been painful. “Investors who bought in 2011 have lost about a quarter of their money.”
Go Brazilian?
Yet there might well be better news ahead in Brazil. “The change of guard in the capital, Brasília, is the real story,” said Blackrock’s Will Landers. “This is a promarket government that should allow its middle class to start expanding again” – and the Bovespa still trades 60% below its highs of five years ago. “Exaggerated swings in sentiment can produce timing opportunities,” agreed Andrew Bell of Witan Investment Trust. The sharp bounce in Brazil, following the “Matterhorn-like descent” of 2015, “seems likely to be the start of a longer-term turning point”.