Trouble in Brazil?

The Brazilian economy, already in the grip of a significant recession, has suffered another blow with the downgrading of the country’s credit rating to “junk” status by Standard & Poor’s. The decision follows failed attempts by President Dilma Rousseff and her government to get on top of the country’s debt problems.

This has been quite a turnaround, with an investment-grade rating having been issued as recently as 2008, at which point the economy had been on the up. What has followed, however, with commodity prices plunging and austerity measures kicking in, has seen the economy entering a downward spiral.

It had been expected that such a downgrade might occur, despite the implementation of austerity measures that had been intended to shore up the failing economy, but the earlier than expected decision comes as a considerable blow. Brazil has the largest economy in South America and had, until relatively recently, been seen as a real flag-bearer for emerging nations.

It’s expected that the Brazilian stock market will react with a big plunge and S&P have declared that there is a substantial credit risk for investors. Indeed, there is a possibility that further downgrades may yet follow.

But how it come to this? There is no doubt that S&P have taken into account a flurry of negative announcements, with the state of the Brazilian economy a cause for real concern in the region. Even optimists are suggesting that no recovery should be expected within the next two years.

Some have seen a need to get inflation under control and the President has made use of an austerity programme, in order to achieve that aim. However, that programme is receiving criticism from all sides: even those who are allied to her politically have been distancing themselves from the programme.

The downgrade now means that ratings agencies are broadly aligning the Brazilian economy with that of Russia, which has clearly been under close consideration in recent months. If the current direction of travel continues then it may only be a matter of time before institutional investors are forced to withdraw their investors.

In the face of this latest crisis, government ministers have been keen to try to soothe worries. They have indicated that Brazil will meet all of its financial obligations that its investment-grade rating will return as soon as there is an upturn in the economy. Analysts will undoubtedly be looking on with considerable interest.

Notes on Asian markets

The various markets of Asia have seen some volatility in recent years, causing many investors (both professionals and amateurs) to reconsider their investment approach.

An examination of current trends can be used to provide guidance as to future performance levels, but there seems to be increasing concern about the overall direction of travel. What next for the markets of Asia? In this insight piece, we take a closer look at emerging patterns and likely future trends.

Japan’s GDP growth rate has seen considerable fluctuations in recent quarters, only emerging from recession in recent months. A growth rate of 0.6% during the last quarter of 2014 has encouraged many investors and economists to see a brighter future for the Japanese economy. With continuing decreases in housing investment and concerns about tax rates, however, it’s evident that there is considerable caution associated with looking too far ahead.

The Indian economy continues to see a significant pickup, although it’s noted that the country continues to run a substantial trade deficit. This can be attributed to the increase in non-oil imports that has been seen in recent months.

Indonesia has been hitting the headlines because there has been considerable growth in consumption, although some analysts are suggesting that the situation may not be quite as robust as it first appears. Household spending has not been rising steadily in those areas where pricing appears to be dependent on oil, or where interest rate changes are felt to be having an impact.

Concerns have also been raised about levels of investment and it’s noted that this may be a factor that is currently holding up growth. On the flip-side, however, it’s become clear that some of the growth in the Indonesian construction industry has been hidden by the overall figures. Some appear to be expecting continued growth in that sector.

Finally, attention turns to Thailand. The Thai economy has been altered by lower levels of government spending and it’s noted that the government does not appear to be hitting the sort of spending levels that have been hinted at in recent statements. It’s unclear whether there is any real hope of this situation changing soon and it is perhaps understandable to see the cautious approach that is being taken by some analysts.

There are particular concerns here, given that the Thai government has set out a policy of looking to boost economic growth via increased infrastructure spending. If those improved levels of infrastructure spending are not being witnessed, then it seems fair to question future trends. Many industry insiders are understandably keeping a close eye on events.

Judging Emerging Markets When Making Investments

It finally appears that one of the most challenging and protracted recessions in modern times is coming to a close. Thus, there are many individuals who may be considering a rather serious foray into the investment market. While it is indeed true that there is a good amount of money to be made in such a way, there are a few factors that should be carefully considered before any such venture.

A Look at Emerging Markets

First of all, it is important to understand the term “emerging market”. It can be used in two different ways. Some consider that as we are exiting a recession, we are currently in an “emerging” market. Although this is true, an emerging market is more commonly referred to as a niche sector that is undergoing or is expected to undergo a substantial amount of growth. Obviously, placing oneself in an entry-level position in this situation can lead to a good deal of profit.

Martin Taylor presenting

Martin Taylor presenting

The Commodity Question

Many individuals have touted the commodity market as being one of the most reliable and stable forms of medium- to long-term investment. In fact, this is quite true. Historically speaking, the prices of precious materials, oil and minerals tend to rise. So, many first-time investors will choose to diversify a portion of their portfolio into this sector, for it can help secure growth over time.

However, keep in mind that what goes up will come down (an example of this can be seen in the massive drop in the price of silver by the ounce in recent years). Even commodity markets will suffer their fair share of falls; particularly if the manufacturing industries or the physical demand slows. Keeping a close eye on any emerging technologies and understanding the raw materials that they may require is an excellent way to become involved in a commodity and turn a handsome profit.

A photo of Nick Barnes

Nick Barnes of Nevsky, at a conference

Forex Trading

If commodity trading can be considered a long-term investment strategy, Forex (or currency) investments are on the other end of the spectrum. In essence, a Forex trader will closely follow trends in the prices of currencies around the world. Should a gap between two different types of currency exist, one or both may be purchased under the premise that subsequent changes in price will accrue a profit.

Also, a Forex position can be used to capitalise on an emerging market such as shale oil (as this commodity is listed in dollars, any major announcement may cause the dollar to quickly strengthen). This market operates twenty-four hours every day and is considered to be by far the most liquid available. As a whole, investors will generally not place a great deal of money into the Forex sector; they will rather use a small position to possibly obtain a reasonably high turnaround.

Still, the short-term nature of this strategy will involve a much higher degree of risk. This is the reason why any such position should be established only after careful study or under the guidance of a professional.

These are but a few examples of how emerging area can be judged in different sectors of the marketplace. Naturally, all risk can never be eliminated with any investment strategy. It is nonetheless possible to experience success should these opportunities be approached with prudence and foresight.