The World Cup in Brazil is off to one of the most exciting starts in recent memory, but unless Brazil wins it all, it may be the riots, strikes and colossal wastes of money that remain the legacy of the games for most Brazilians.
As for the effect of all this on anyone investing in Brazil? So far, we’re talking about drops of rain in the Amazon.
True, the Brazil World Cup has brought plenty of waste for Brazilians. There’s probably no better example than the location of the U.S. team’s heartbreaking draw with Portugal Sunday night. The game was played in a stadium built for the World Cup, at a cost of $300 million, in remote city which doesn’t have a first-rate team. It will reportedly cost $250,000 per month just to maintain.
No wonder such a large portion of Brazilian society is enraged at World Cup spending. This is a country that has in many ways never been richer, and yet large swaths of the middle class on down haven’t shared in the gains.
Infrastructure — from highways to housing to rail transportation — remains inadequate, creaky or non-existent. Healthcare and education likewise benefit too few by too little.
Brazil World Cup: A Different Game for U.S. Investors
For U.S. investors, none of this really matters. World Cup waste is a symptom, not a cause, of the problems besetting the economy of Brazil.
All emerging markets are slowing down, hurt by a sluggish global economy in which China’s voracious appetite for raw materials will likely never return to previous levels. Feeble growth in the U.S. and Europe don’t help, either.
Then there’s the effect of tighter monetary policy in the U.S., which sucks resources invested in emerging market assets back home.
That’s the economic pitch Brazil was playing on ahead of the World Cup — while stumbling over its own feet at the same time. High inflation, punishing taxes, a bloated public sector, enormous transportation costs and jungles of red tape all conspired to finally trip up a once-red hot economy.
And yet — for investors — Brazil stocks look to have bottomed and then some. After years of woeful underperformance, the iShares MSCI Brazil (EWZ) exchange-traded fund is up a robust 11% for the year-to-date, beating the S&P 500 by five percentage points.
As ugly as the violence and waste in Brazil tied to the World Cup has been, it’s not hurting U.S. investors these days.
Brazil is in desperate need of reform. That’s its problem; not the World Cup. Sure, it spent roughly $11 billion on the games, but an economy of $3 trillion can afford that sort of folly.
What Brazil can’t afford is to keep charting the same course after the World Cup is over.
As of this writing, Robert Martin did not hold a position in any of the aforementioned securities.