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MSCI Brazil index continues to underperform despite strong recovery – Commerzbank column

The Covid 19 pandemic put the capital markets and the economy in Brazil under even greater pressure in the first half of 2020 than in many other countries. This is shown by the performance figures for the MSCI indices for the first six months of the current year. The MSCI Brazil index lost a whopping 38% (!) In value in the reporting period. This results in a strong underperformance compared to the MSCI world and the MSCI EM index. This is primarily the result of the temporary strong devaluation of the Brazilian real compared to the US dollar (-26% since the beginning of the year, as of July 1, 2020) and the drop in prices for many raw materials, which is disproportionately burdening Brazil. The MSCI Brazil index benefited only marginally from the very strong recovery in global equity markets in April / May / June 2020. On the one hand, this was due to the rapid spread of Covid-19 cases in Brazil (so far more than 1,000,000 infected and more than 50,000 dead, although the number of unreported cases is likely to be significantly higher) and the associated tightened measures to combat the virus, the in turn, are likely to have a negative impact on growth and debt. The late reaction of Brazil to the outbreak of Covid-19 in the country and the currently relatively tense political situation with the dismissal or resignation of ministers undermines the already severely damaged investor confidence. Brazil is likely to slide into a severe recession in 2020 (2020E GDP forecast: -6.4% y / y). So far, we are only expecting a hesitant recovery in the coming year (GDP 2021e: + 2.3% yoy). Due to the strongly negative effects of the Covid 19 pandemic on Brazil (economy, currency, raw material prices etc.) and the political unrest, we remain cautious on the Brazilian stock exchange and continue to recommend an underweight within our regional allocation (equities).

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