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Friday, July 5, 2013

Now's not the time to be long Brazil...

Dilma
...if we credit the analysis of blogger Emerging Money in his recent SEEKING ALPHA post, Brazil Down 28% In Just A Month - What's Going On ?", excerpted below.

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...President Dilma's popularity ratings are at lows (30%) while her team and party look to be very vulnerable in the 2014 November elections. All of this is weighing on the Brazilian real, which is 16% lower against the dollar in the current slide.

The real's slide is a function of the political uncertainty and the lack of clarity on what they intend to do with both monetary and fiscal policy.

Another major factor is one that hits investors closer to home with disappointing corporate governance and earnings...

The problem is that investors were sold companies that had levered balance sheets in a declining commodity market, with underlying assets that either were not as impressive as advertised, or flat out not worth the money they were sold for.

The housing sector was a place where everyone followed early pioneers like Sam Zell into the concept of the greatest middle class opportunity in emerging markets. The problem that has befallen investors is that most of the Brazilian homebuilders traded publicly became loss- leading, cash-burning, receivables-growing entitles with falling margins. Now a few of them may actually go to zero. And by the way, with all this bad credit going around, the banks look suddenly vulnerable.

Finally, after a 50%-plus move lower in the market since April 2011, you still don't have a market that is terribly cheap on multiples...

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