GEMs Equity Strategy:Buying

This note briefly considers the implications of the latest political developments in Brazil,with President Temer allegedly endorsing the payment of a bribe to Eduardo Cunha, theformer speaker of the Lower House. On the day, the Brazilian equity market fell 14% inUSD terms. We are overweight Brazilian equities and see this as presenting a mediumtermopportunity to add exposure.

    The near-term political outlook in Brazil is very uncertain (see Brazil Multi-assetspecial, John Welch et al, 18 May 2017) in which four different political scenarios arediscussed. It is very hard at this juncture to assign any probabilities. Nevertheless,stepping back from this a number of positive points can be made. This was always aninterim Presidency, before elections in 2018. This is the real focal point for a changein governance in Brazil and the likely outcomes to this have not been changednegatively by the latest allegations.

    In the near term, the Government’s economics team is unlikely to change