“Brazil is a country of tomorrow and always will be.” General Charles de Gaulle dissed Latin America’s largest economy with Gallic disdain. Quelle horreur! Yet I have been fascinated by the magical land of samba, carnival, Pele, Gisele, Roberto Carlos and the Bovespa since my first visit in 1992 – blame it on Rio! The last two years were a political and economic nightmare for Brazil. President Dilma Rousseff was impeached and ousted after the Lavo Jato scandal implicated the entire political and business elite. Brazil endured its worst economic recession since the Great Depression. Standard & Poor’s slashed Brazil’s sovereign debt rating to BB, de facto junk bond levels. Even President Michel Temer, Dilma’s reformist successor, was implicated in a scandal and accused of offering hush money to a witness in a corruption probe. Latin America’s economic colossus seems yet another sad Third World banana republic, with its kleptocratic senators, its bribery-prone billionaires, its disgraced financiers; a country of tomorrow that will never come.
However, as an emerging markets investor, I live life in the world of the second derivative, the deltas that define my calculus of risk and return. So I do not shun Brazil’s financial woes; I embrace them by buying the iShares Brazil Capped ETF, the world’s largest Brazil country index fund, listed in the New York Stock Exchange under the symbol EWZ. Why?