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What Do Rating Agencies Think about the Brazilian Economy?

Quantitative Analysis of Latin America's Bull Run: Is It Overdone?

(Continued from Prior Part)

Rating agencies stance

Various rating agencies such as Standard & Poor’s, Fitch, and Moody’s (MCO) downgraded the Brazilian economy (EWZ) (BRZU) (BZQ) in the last six months. Standard & Poor’s downgraded Brazil’s credit ratings to “junk” grade on September 9, 2015. On December 16, 2015, Fitch also downgraded Brazil’s sovereign credit rating to “junk” grade due to the country’s high fiscal deficit, deeper-than-expected recession, and political turmoil. Brazil’s president, Dilma Rousseff, wasn’t able to regain investors’ confidence due to the Petrobras (PBR) scandal.

The above table shows the recent ratings provided by rating agencies such as Standard & Poor’s, Fitch, Moody’s, and R&I.

What are the ratings agencies looking for?

The rating agencies might upgrade Brazil’s ratings if they see the following changes.

  • A stable government with a clear economic vision could minimize the risk in the economy.

  • The economy needs to shift its growth model. It needs to diversify its business. Brazil’s major business depends on exporting commodities. It needs to focus on different services that will create more employment in the economy. The country needs to curb the high unemployment.

  • The higher inflation rates need to be controlled. Brazil’s monetary policy needs to be supported by fiscal measures.

  • The country needs to provide stable economic growth.

Read Will Commodities Outperform Equities? to learn more.

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