Quasar Asset Management – In April, while in the U.S. the S&P 500 recovered +12.68% (and is only -12.60% year-to-date), the MSCI Emerging Markets Index dropped to -17% in the same period. Looking at the single Country-level within the Emerging Market, many Equity Index as China, Brazil, Russia, India, and Mexico dropped to extremely low levels this year to -15.82%, -51.26%, -28.64%, -28% and -36.97% respectively, as the Covid-19 pushed investors to make a massive sell-off of their risk assets.
Latin America has been one of the worst-performing regions. Focusing on Brazil, the pandemic spread proved the Country’s healthcare spending has been quite ineffective compared to Developed Countries one. Difficulties in the healthcare system combined with a poor Government alignment in response to the incumbent emergency, lead to an economic impact of -3.76% GDP loss in FY20.
Moreover, the Brazilian’s dependence on Global trade is putting under pressure the Country’s economy. Due to both the global lockdown and Oil price war, commodities and energy consumption in Developed Countries dropped at an unprecedented level, leading to a 21% depreciation of the Brazilian currency from the beginning of the year.
Lastly, social tensions and dissatisfaction towards the Government effort to contain the pandemic have further exacerbated the local political instability, especially when recently Justice Minister Sergio Moro accused President Bolsonaro of corruption against the Federal Police.
However, in such a scenario characterized by a higher level of uncertainty, Emerging Markets can still represent an attractive investment opportunity. Brazil did not benefit from the same U.S. “Whatever it takes” made by the Central Bank to support the local economy during the health emergency. That’s why compared to the near zero-negative Yield of the Developed world, Emerging Market High Yield Bond reported around 7% Yield in April.
The information in this article should not be regarded as a description of services provided by Delian Partners SA. The opinions expressed in this article are for general informational purposes only and are not intended to provide specific advice or recommendations for any individual or on any specific security or investment product. It is only intended to provide education about the financial industry. The views reflected in this article are subject to change at any time without notice.
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