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60 seconds with James Barrineau on whether Brazil’s recovery is sustainable

The storm engulfing Brazil’s government has provided a catalyst for a strong rebound in the country’s assets, but are the raw materials in place for a longer-term recovery?

04/05/2016

James Barrineau

James Barrineau

Co-Head of Emerging Markets Debt Relative

What’s prompted the rally in Brazilian assets?

Brazilian assets have recovered strongly on the back of a perception that President Dilma Rouseff will be impeached (on charges that she illegally borrowed from state banks to plug budget holes). It now looks like she will be impeached, with Vice President Michel Temer taking over.

Temer has already made noises about bringing in some significantly market-friendly economic policymakers. That would be a considerable improvement over what has happened over the last couple of years.

Will Brazil’s rebound last?

We think that Brazilian sentiment will remain strong. However, the economy will remain weak. But, if the vice president is able to enact some reforms, then the appreciation of the Brazilian currency (the real) and significant inflows into the country, could bring about the beginnings of an economic recovery.

It won’t be easy and there won’t be a very fast recovery in Brazilian assets, but the country is still a significant commodity exporter, and as commodity prices have rebounded, the raw materials of a recovery in Brazil are there.