This week we paid a lot of attention to Brazil. Reason being the fact that we could already take profit on our Vale holding. We replaced it by Petrobras, thereby keeping the exposure to Brazil stable.
Later this week the introduction of a new tax that seems to hurt international investors led to some turmoil on Brazilian stock markets. Actually, BMF Bovespa - the stock exchange itself - was one of the biggest sufferers amongst listed shares (-8.5% on a day).
Shouldn't we consider reducing the stake in Brazil?
We decided not to do so. As always, we see this kind of reaction and it is often plagued by overreaction at moments when people do have profit. And just like we had the opportunity to sell Vale, a lot of other foreigners would have similar chances. But the bottom line is that the Brazilian stock market remains one of the most important markets within Emerging Markets.
Short-term negative signals like these are a) often forgotten quickly; and b) Brazil's strong position within the BRIC group of leading EMs remains and there is no reason to assume that the end of the recovery period for Brazil is there.
Therefore: business as usual and we treat it like going to a Middle Eastern style hairdresser for a shave. Sit quiet, so that it won't be a cut-throat experience. When doing so the end result will be smooth and markets will get back to business as usual, which in this case will be to re-find their way up.