The Brazilian investment case has transformed dramatically over the past eighteen months. Back at the beginning of 2016, the market was under pressure from both international and domestic factors.
The Chinese economy was slowing, which resulted in a precipitous fall in commodity prices, and the US Federal Reserve was beginning to raise interest rates, with the expectation of up to four hikes over the course of the year.
In Brazil, populist policies from the Dilma government were stretching the fiscal accounts and concerns were rising over the trajectory of government debt, while the economy was mired in the deepest recession for decades – over 2015 and 2016 it contracted by -7.3 per cent.
This all led to a significant depreciation of the Brazilian real – falling by over 60 per cent against the dollar from 2011 to early 2016 – a sharp rise in the country risk premium, and credit rating downgrades taking away Brazil’s investment grade status.
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