Goldman Sees 14% Brazil Real Jump by July; Says Buy Stocks

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(Bloomberg) -- The bank that warned South America’s biggest economy was sinking into a depression back in 2015 now has Brazil as among its top picks in emerging markets that are "powering ahead" in face of rising global interest rates and protectionism fears.

“Despite the drawdown in developed-market equities and spike in volatility, emerging market foreign exchange and equities have been resilient," Goldman economists including Andrew Tilton in Hong Kong and Alberto Ramos in New York, wrote in an April 17 note. There is still “room to grow” for emerging markets, they said.

Among the group’s recommended trades and “conviction views” is going long Brazilian equities, and buying the currencies of Brazil, Chile and Peru against the dollar. Perhaps the most eye-catching is a forecast for the Brazilian real to reach 3 per dollar in three months, from 3.4078 late Tuesday -- a surge of almost 14 percent.

Goldman’s call stands out against the median forecasts of 3.30 for the end of June and 3.33 for end-September in Bloomberg surveys.

Another winner in Goldman’s view is South Africa’s rand, seen climbing about 9 percent over the coming year, to 11 per dollar from 12 on Tuesday. The currency is "one of the clearest idiosyncratic opportunities," with the new government offering a confidence boost, the Goldman analysts wrote.

On Brazil, Goldman’s not alone in its optimism. A survey at a conference of money managers and analysts in Miami last month showed the country to be the investor darling, in the run-up to presidential elections in October.

More broadly, 67 percent of participants in a monthly fund-manager survey by Bank of America Merrill Lynch released Tuesday said Latin America is most likely to outperform within emerging markets in the next six months.

The Goldman analysts flagged that there are still “non-negligible risk of policy reversals” in Brazil, along with Mexico -- which faces presidential elections in July.

Even so, Latin America’s economic backdrop is seen improving further in 2018, with a pick-up in growth and inflation moderating in a number of countries, the bank said.

©2018 Bloomberg L.P.

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