Country Primer: Brazil

Generating alpha by identifying divergences

Intro To Country Primers:

Developing an exceptional base of knowledge is THE differentiating factor between blindly following narratives and knowing what is actually going on. It is the prerequisite to generating exceptional insights that can be monetized.

We started with a Primer on Japan given its position in global capital flows:

We then moved to Mexico given its heightened importance in the deglobalized world we are moving into:

We are continuing this focus with Brazil!

Mapping capital flows and the flows of goods/services are two sides to the same coin. Brazil has a very unique place in the world from a trade and financial markets standpoint. Their currency is a reflection of this. While it has been trending up for the past decade, it is now compressing before its next move.

This is occurring as their stock market is making ATHs:

And the largest bank is leading the way. Let me say, that when you have financials and banks leading a breakout in stocks, you know the underlying trend likely has credit creation from banks behind it.

The government owns half of the bank:

And loan issuance continues to climb quarter by quarter:

It is signals like these that should cause you to be very interested in what is happening “under the surface.” Most strategies paint broad strokes about countries with reductionistic narratives. This falls apart when you begin running risk as a practitioner. We will build a comprehensive framework by analyzing Brazil's structural and geopolitical regime, and then correctly quantify it with economic data. It is upon this foundation that we can analyze Brazilian financial markets correctly. I will be sharing more and more trades from the countries I write primers on as we progress through the year.

Do the work now to generate the alpha later!

Overview: Here is the structure for this primer

• Country Overview

• Geography and Demographics

• Economic Data: GDP, GNI, BoP, and Balance Sheets

• Financial Markets: Stocks, Bonds, and the Brazilian Real.

• History of growth, inflation, and liquidity on a structural and cyclical basis

• Current growth, inflation, and liquidity regime and its connection to each financial asset

• Additional resources for research and trading in Brazilian markets