The Brazilian economy managed to shrug off pandemic-fueled economic disruption to register growth so far this year. Brazil's government cut its industrial tax (IPI) by 25% for most products to curb rising inflation and help recover from the pandemic-led damages. Bullish investor sentiment toward the Brazilian economy is evidenced by the iShares MSCI Brazil Capped ETF's (EWZ) 30% gains year-to-date.
The Fed's monetary policy tightening, 40-year high inflation, and surging oil prices have added stagflation risk to the U.S. and increased market volatility. Furthermore, these factors are pushing the U.S. economy toward recession. To alleviate the potential risk and instability, we think investors could add fundamentally solid Brazilian stocks to their portfolios. Brazil's thriving industries include agriculture, real estate, oil and gas, renewable energy, mining, and fossil fuels. These represent attractive investment sectors in Brazil.
