The bear market in bonds and stocks will likely bottom when inflation begins to fall and central banks can ease up on the monetary brakes.
There is no sign yet that inflation is poised to trend down in most countries. An exception is Brazil: the year-over-year change in the Brazilian CPI recently plummeted from 12% to 7%.
Source: Gavekal Research (provided by The Daily Shot)
With lower inflation, Brazilian interest rates should fall in coming months and support a rally in stock and bond prices. Economic growth should also pick up in coming quarters and support the Brazilian real against other currencies.
One ETF to consider is the iShares MSCI Brazil ETF (EWZ), which is the largest and most liquid ETF tracking Brazilian stocks. The dividend yield is close to 11% and the annual management fee is just over 0.5%. There is some positive price momentum – the ETF has gained 15% over the past 3 months.
To obtain more of a pure play on Brazil, the iShares MSCI Brazil Small-Cap ETF (EWZS) could be an additional consideration.
A risk factor is the win (by a narrow margin) in the recent Presidential election by the socialist candidate over the incumbent, business-friendly candidate.