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Shifting Political Regimes in Emerging Markets Could Drive Reforms

Why Investors Have a Renewed Interest in Emerging Markets

(Continued from Prior Part)

Political reform

In several markets, investors are closely watching for political regime changes that may drive new economic policies. Among them are Brazil, where increased momentum to impeach President Rousseff and indict former President Lula da Silva is reassuring markets that a resolution may be near; and Peru and Philippines, where upcoming elections may result in regime change and economic policy shifts.

Market Realist – Change in regime could unleash economic reforms

The possible government changes in some of the emerging (EEM) (IEMG) nations could result in rapid economic reforms. And Brazil (EWZ) is one of the most interesting stories. The sharp drop in oil (IEO) and other commodity (COMT) prices has put Brazil’s economy deeper into recession, which led to the decline in popularity of leftist President Rousseff. Add to this the fact that Brazil’s lower house has launched impeachment proceedings against the president amid a corruption scandal. Rousseff would be succeeded by Vice President Michel Temer if she were to be removed from office.

The Brazilian real jumped about 8.7% against the US dollar in the last one month on the hope that a change in government could unleash economic reforms that will lay the groundwork for an economic recovery. On the other hand, the benchmark Bovespa stock index is up by 17.3% YTD (year-to-date). It is one of the best performers in emerging markets. On the contrary, the MSCI Emerging Market Index is up by just 2.4% YTD.

Investor-friendly government is likely in Chile

Chile will go to the polls on April 10 to select a new president. Investors expect the presidential front-runner, Keiko Fujimori, to win the race and form a new government. It is widely believed that Fujimori presents the best chance for sustaining growth in the Chilean economy.

Reforms expected to continue in the Philippines

The presidential election in the Philippines is due to take place on May 9. All the presidential candidates uphold the importance of economic reforms and support substantial investment in infrastructure to maintain the growth momentum. This is a big positive for many investors.

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