When the dollar was at around R $ 2.00, seemed an obvious call. Now, since a dollar is worth about R $ 4.00 … well. While Brazil insists on continuing the measures that led us to three years of recession and a double-digit inflation tragedy, and is having their investment grade lowered again from its current junk level, Mexico has raised interest and adopted fiscal austerity measures, important measures to shield the country in the face of increased external turbulence.
Interestingly, the Brazilian Real is still one of the best performing currencies of emerging countries so far in 2016. The distortions between short-term prices and fundamental values creates opportunities to be seized.
Today, Brazilian investors are still mulling over S&P’s decision to reduce Brazil’s investment grade one more step – from junk to worse junk. Fortunately, the credit rating agency, as normal, is lagging behind the market’s thoughts. Most stocks have already felt the force of this news throughout the past couple months.