24 Mar 2021
Gustavo Stenzel, Director, LatAm Strategy,Franklin Templeton Emerging Markets Equity | Claus Born, Institutional Product Specialist,Franklin Templeton Emerging Markets Equity
he COVID-19 virus has devastated economies across the globe, including those in Latin America. As the 9th largest economy in the world with a nominal gross domestic product (GDP) of US$1.84 trillion,1 Brazil is arguably South America’s most influential country. Amid pandemic-induced uncertainty and a sharp decline in domestic demand, Brazil’s economy suffered. That said, the country fared relatively well in relation to the wider region, due to generous fiscal stimulus. GDP is expected to decline 4.5% in 2020, but is projected to recover in 2021 and 2022, with GDP growth of 3.6% and 2.6%, respectively.2
Despite the economic disruption the global pandemic has caused, we’ve seen a surge of local interest in equities over the past year, in addition to an increase in initial public offerings (IPOs) since the beginning of 2020.
We observe three underlying domestic factors at play:
The evidence we’ve seen suggests Brazil could be gearing up for a year of recovery, with the help of domestic drivers. An influx of new, local investors is likely to drive demand for equities as interest rates remain low in the near to intermediate term. At the same time, increased interest in Brazil’s market among foreign investors could spell increased competition among private companies and lead more companies to tackle ESG issues.
ENDNOTES
Source: World Bank, 2019.
Source: International Monetary Fund, World Economic Outlook, January 2021. There is no assurance that any estimate, forecast or projection will be realized.
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