James Dondero is known for being cautious when it comes to investing in emerging markets, especially this year. Mr. Dondero spent 17 years with American Express and several years with Protective Life in key management positions, so he knows when to pull the trigger on risky assets in foreign markets. It has been a tough year for the investors that have been enjoying great gains in Brazil for the last four years. But the second half of 2015 has been a horror show for those investors, especially investors that had oil and raw material assets.
But according to Mr. Dondero the Brazilian stock market is having its longest advance in more than 18 months. Dondero said iron-miner Vale SA is part of that advance. That’s good news for emerging market investors, and Dondero of jimdondero.com thinks there could be some new bright investing spots in Brazil especially since the Feds are not going to raise interest rates. Investors are hoping the Feds wait until next year to raise rates. If they do, the appeal of emerging-market assets will gain momentum.
Mr. Dondero still thinks there are hurdles to overcome. The government issues that surround President Dilma Rousseff must be resolved, and oil prices have to go up, so Brazil can increase their export business. The mood in Brazil is positive, but there are concerns that China will not be as strong a trading partner as they have been in the past. If China continues to reduce their import needs that will hurt Brazil’s recovery, according to Dondero.
Emerging market stocks are getting stronger in the third quarter, the dollar has weakened a little, and the real is making a comeback, and Dondero thinks they are all good signs for investors. If the government’s austerity plan helps curb inflation, and if te government is able to pull the country out of the current recession, investors like Dondero are ready to jump back in Brazil with both feet. But as Dondero pointed out, those “ifs” are tough obstacles to over when the government and the president has a single-digit approval rating.
Brazilian assets may look like the last things on earth to invest money in, but Dondero claims there are winners hiding in all the negative publicity. Even though Petrobras has had several issues this year, it is a solid state-owned company. It is risky to invest in Petrobras stock, but Dondero says it’s on the move and can only go higher.
Dondero also thinks Lenders Banco Bradesco SA and Itau Unibanco Holding SA are a good bet, and Vale SA looks good as well. Nothing is a sure thing when it comes to Brazilian stocks, but there are several stocks that are worth a look if investors have the patience to withstand the risks. The other interesting fact that Dondero likes to talk about is what is happening in India and Mexico in terms of investments. Both countries are offering investors some real gains in 2016 as long as their GDP output continues to outshine the rest of the world.