This rotation from fixed-income to equity could affect all types of investors, too. Most countries’ pension plans have asset allocations toward equities that are similar to bonds. But in Brazil, outside of some of the biggest pension plans that are significant owners in state-controlled companies, the equity allocation if often as little as zero. Therefore, there’s scope to increase allocations, with many pension plans able to at least double their equity allocations.
This trend toward equities is already underway among individual investors, as well. The number of people who have registered accounts at the stock exchange has increased dramatically in 2019, surpassing 1.4 million.
The investment landscape in Brazil is changing more than it ever has before. This is the first time since the creation of the Brazilian real that government interest rates have been this low. Furthermore, this unprecedented situation sees a capital-markets-friendly government coinciding with a robust structural flow story in Brazilian equities, which should support stock price appreciation. EM investors may do well to take note.
Nick Robinson is manager of the Aberdeen Emerging Markets Equity Fund at Aberdeen Standard Investments.