Brazil Advances as Net Winner of Current Geopolitical Tensions in Eastern Europe

With the Russia-Ukrainian conflict still occupying the main portion of all headlines and commodities markets heating up by a minute, global emerging markets are suffering from flight to safety. However, total omission of energy and metal supply deficiencies proves to be a very short-sighted approach. Although the Russian energy export embargo is unlikely for the mere reason of its Russian share in the global market, alternative sources must obtain tangible premiums under current circumstances.

For now, Brazil stands out to us as one of the potential beneficiaries of global sanctions against Russia. Brazil is the world's fourth-largest commodity exporter. It is the biggest exporter of soybeans and coffee, and the second-biggest exporter of corn and iron ore. As of end-2021 total volume of Brazil exports constituted $280.4 billion.

According to the International Monetary Fund, IMF, Brazilian nominal GDP of 2021 was US$1.645 trillion, and the country has a long history of being among the ten largest economies in the world. According to the World Economic Forum, Brazil was the top country in upward evolution of competitiveness in 2009, gaining 8 positions among other countries, overcoming Russia for the first time, and partially closing the competitiveness gap with India and China among the BRIC economies.

The MSCI Brazil Index rose 18% in the first two months of the year, outperforming the MSCI Emerging Markets (EM) Index and the MSCI US Index. The increase in energy, industrial, and agriculture commodities prices this year is benefiting the MSCI Brazil index, which has a 45% weighting in these sectors. Easing concerns over the outcome of the presidential election in that country in October have reduced the risks for the market in the eyes of global investors.

The continuation of the ongoing commodity price surge amid global supply concerns and geopolitical tensions is potentially good news for Brazil's commodity exports, economy, and market.

Agricultural commodity prices surged 18% in the first two months of the year, driven by geopolitical uncertainty, adding to their 25% gain in 2021. We expect this rally to be a tailwind for Brazil given its status as a commodity exporter. Therefore investors are advised to closely monitor all relevant country-related benchmarks.