If memory does not fail me, the Brazilian Real has been among the best carry trade opportunities for a while - to your point; any thought as to WHY that might be?
The Brazilian economy is odd in that most domestic capital just wanta to park itself outside the country while the stock market just keeps growing and growing with the influx of foreign capital...
Sounds weird that Brazilians would willingly and systematically just miss out on making money in their own back yard
Speaking from Brazil: foreign investors are driving the move, as they have been in the last couple of years. I can recall 3 times in recent past that locals reLly went through and bought it all:
-2016: Left-wing president was impeached
-2018: Right wing president was elected
-2021: 2% interest rate with pandemics
Now, people are mostly worried about with public spending and public debt, government is really not helping. It probably will get worse on this side because we have major elections coming in, it will renovate congress and elect a new president (or keep the same, which locals fear), thefore more spending is on the way.
Yet, I am long. I do think locals are too much biased with our internal problems. it is not like the world is in a brighter spot, our stock market is a joke in terms of valuation and we do have abundant energy and natural resources.
My guess is that locals are being shortsighted when they think the inflows are temporary and close their eyes to deglobalization and the way things are turning into a secular bull market towards rich resource economies just like Brazil as the world spends in AI and onshoring.
The estimates that local economists stabilish for real is around R$ 5.50 for each dolar, due to speed public spenditure has been growing, without any means of control. I dont think 4.50 makes sense. Fiscal risk has put BRL above 6.00 Just recently. What would explain 4.50 as a fair value?
The 2022 parallel holds on the currency but diverges on the fiscal side. In 2022 the risk-off unwind happened into a Brazilian public-sector surplus and a BCB already deep in tightening cycle. This time the carry is sitting on top of an expanding deficit and a BCB whose restrictive stance is under sustained political pressure. The Real can still rally through 4.50 on the external terms of trade argument, but the path there is noisier than the 2022 move because the fiscal floor is softer. The question for the next two quarters is whether the external positive compounds faster than the domestic risk premium repricing it.
If memory does not fail me, the Brazilian Real has been among the best carry trade opportunities for a while - to your point; any thought as to WHY that might be?
The Brazilian economy is odd in that most domestic capital just wanta to park itself outside the country while the stock market just keeps growing and growing with the influx of foreign capital...
Sounds weird that Brazilians would willingly and systematically just miss out on making money in their own back yard
Speaking from Brazil: foreign investors are driving the move, as they have been in the last couple of years. I can recall 3 times in recent past that locals reLly went through and bought it all:
-2016: Left-wing president was impeached
-2018: Right wing president was elected
-2021: 2% interest rate with pandemics
Now, people are mostly worried about with public spending and public debt, government is really not helping. It probably will get worse on this side because we have major elections coming in, it will renovate congress and elect a new president (or keep the same, which locals fear), thefore more spending is on the way.
Yet, I am long. I do think locals are too much biased with our internal problems. it is not like the world is in a brighter spot, our stock market is a joke in terms of valuation and we do have abundant energy and natural resources.
My guess is that locals are being shortsighted when they think the inflows are temporary and close their eyes to deglobalization and the way things are turning into a secular bull market towards rich resource economies just like Brazil as the world spends in AI and onshoring.
The estimates that local economists stabilish for real is around R$ 5.50 for each dolar, due to speed public spenditure has been growing, without any means of control. I dont think 4.50 makes sense. Fiscal risk has put BRL above 6.00 Just recently. What would explain 4.50 as a fair value?
The 2022 parallel holds on the currency but diverges on the fiscal side. In 2022 the risk-off unwind happened into a Brazilian public-sector surplus and a BCB already deep in tightening cycle. This time the carry is sitting on top of an expanding deficit and a BCB whose restrictive stance is under sustained political pressure. The Real can still rally through 4.50 on the external terms of trade argument, but the path there is noisier than the 2022 move because the fiscal floor is softer. The question for the next two quarters is whether the external positive compounds faster than the domestic risk premium repricing it.
Isn’t the currency unit inverted in the caption? Shouldn’t it be BRL/$ instead of the inverse as shown?