BRL and other brazilian assets have run
quite a wild path last 4 years. From the “country of the
future” to most hated EM and now to some “OK back to business”.
No intention to tell the whole story again now once most know it very
well. What calls my attention now is that perhaps once the excesses of
the downside relative to other currencies has worked out it seems now
for me that the optimism has also run its course in relative value to
other EM's. Important to notice the “relative” because I still
believe commodities has a way to go up so BRL will still benefit from
it but Im concerned the “very cheap” is behind, both in relative
value and also in fundamental terms.
Currency is probably one of the worst
markets to predict. Besides many factors acting at the the same time
they also change in importance during the time. Not to say that
sometimes it seems no fundamental factor works at all. But sure tones
of models can be made and at least we are not in the middle of
nowhere without a compass.
Built this simple one below using only
commodities and CDS. Chart is YoY %
Not only not cheap but also a bit
expensive.
On relative value against an equal
weighted EM basket it also doesn't look very cheap anymore.
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