G.D.P, Inflation and Elections Challenge Investment in Brazil

07/28/2014 - 08h58

Low economic growth, pressure for a price hike and the instability of indicators following election poles.

Add to that uncertainty regarding the end of U.S. economic incentives, the European crisis and geopolitical tension in the Ukraine and the Middle East.

Making (or losing) money before the end of 2014 will be a more difficult job for fund managers in Brazil.

In the horizon there is an increase of restrained prices (gasoline, energy, public services, etc.) and bitter medicine, such as a cut in public expenses and reducing interest rates.

As there are more doubts than certainties, the best strategy is to diversify.

With fixed income investments, investors are protected in the case of an interest rate reduction. With DI (Interbank Deposit) funds, they win with an increase in interest due to the continuation of inflation.

Currency funds are also a protection if the U.S. decides to raise interest rates, taking money from developing countries. Gold will prove to be a good investment if the crises in the Ukraine and the Middle East continue.

All these scenarios can come true, alternating in the next months, making some investment rise and others fall.

Inflation has increased, depressing investments that follow post-fixed interest rates - such as DI funds. On the other hand, it helped investments that follow pre-fixed interest rates and price indexes - fixed income funds and price indexes.

The G.D.P. forecast was reduced several times, reducing expectations regarding stocks.

The stock market only started to rise after April following opposing candidates, under the argument that they will lead a less political administration, more focused on government-owned companies' profits.

Translated by THOMAS MUELLO

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