The stereotypes have been in full flow throughout the tournament, of course; German efficiency coming up against Brazilian flair. As with football fans, investors like a good story to get them interested, and it’s fair to say that those backing Brazil and, and emerging markets in general, have faced their fair share of adversity in recent years.
In the five years to 8 July, FTSE Brazil has grown only 14% (the local Bovespa index has performed even worse, down 8%). In comparison, the DAX was up 98%.
At the start of the World Cup the big concerns were of protest from Brazilians disillusioned about the £10bn cost of hosting this event and the forthcoming 2016 Olympics. With reports of further unrest yesterday, the spotlight is already moving away from sport and to the economy.
John Redwood, chairman of Charles Stanley Pan Asset’s investment committee, stresses the confidence and spending boost from supporting the home team is well and truly over.
New tactics
“Brazil has to return to the problems of combating poverty, tackling inflation and dealing with an economy that is not growing as strongly as they need,” he says.
“The authorities need the current high rates of interest to choke off inflation, but they need looser money to stimulate more activity. They need to deal with some of the difficulties on the supply side of the economy so they can achieve more output growth with less inflation, which may now await a new government after the elections.”
Does one game of football really impact President Dilma Rousseff’s prospects for re-election in October? That’s debatable, though as Fiona Manning, manager of Aberdeen Asset Management’s Latin America Equity Fund, has pointed out, World Cup disappointment can only add to overall disillusionment facing the current Government.
“In the short-run, some companies will benefit from the legacy, yet the bigger challenge facing Brazil is slowing growth and stubbornly high inflation,” she says.
“President Rousseff’s government is already under pressure from the Brazilian people as public funds have been spent on hosting the games rather than invested in much needed housing, infrastructure and other social projects.”
However, Manning still sees Brazil as home to some good quality companies that have the potential to perform well over the long term, including clothing retailer Lojas Renner and maritime services company Wilson Sons, which is exposed to the favourable outlook for the oil and gas activity in the country while benefitting from sector funding.
As with other emerging territories, Brazil is yet to establish equilibrium between being a commodities play and developing sustainable consumer spending patterns.
No replays
Germany may no longer be the ‘sick man’ or Europe, but has other things to contend with including, as part of the eurozone, the region’s battle with deflationary pressures and the fallout from ECB President Mario Draghi’s recent monetary stimulus measures.
A cup win on Sunday could help of course, though a question for investors is can such wide performance margins be repeated again in the next five years, and if not are you backing an emerging market renaissance?
