Christopher Langner is a markets columnist for Bloomberg Gadfly. He previously covered corporate finance for Bloomberg News, and has written for Reuters/IFR, Forbes, the Wall Street Journal and Mergermarket.

Investing in Brazil has quickly gone from the worst trade to the best. Trying to assess whether the country's stocks and bonds can build on this year's rally depends on a view on commodities. What is more certain is that compared with faster-growing Asian economies, the nation's markets look expensive.

The Brazilian real has appreciated 9.3 percent so far this year against the dollar, beating all emerging-market peers and paring a 33 percent drop in 2015. The Bovespa index, the stock benchmark, is up 23.9 percent, the best performer among major gauges. Brazilian dollar bonds have staged the biggest rally among large emerging markets, in spite of Moody's having downgraded the country for the second time in less than a year in February, to Ba2.

Brazilian Swing
The Bovespa went from one of the worst performers in 2015 to best among major indexes this year
Source: Bloomberg


Best Bric
Brazil's dollar corporate bonds have returned more than Russian, Indian or Chinese this year
Sources: Bloomberg; Bank of America Merrill Lynch EM Corporate Plus indexes

Now, analysts at firms including Credit Suisse are calling for investors to increase bets on Brazil and reduce exposure to India.

Commodity prices are one reason: As of Wednesday, the 30-day correlation of the MSCI Brazil stock index and the Bloomberg Commodity index was at 61 percent, the highest since September. With few exceptions, this correlation has been consistently positive for the past two decades.

High Beta
The Brazilian stock market has been following the path of commodities on steroids
Source: Bloomberg
* Gauges indexed for comparison

Rising commodities are good for Brazil, Russia and South Africa, all of which export raw materials, and bad for China and India, which mostly import them. Beyond that, however, there's little to justify leaving Asia for Brazil just now.

Take economic growth, an essential underpinning of corporate earnings. Brazil's economy shrank 3.8 percent last year, and the median forecast in a Bloomberg survey of economists is for a drop of 3.3 percent this year. Meanwhile, China grew 6.9 percent and will expand a forecast 6.5 percent, while India logged 7.3 percent growth and is seen matching that performance this year.

Some will argue that China and India may be fudging the numbers. They're definitely growing, however, and Brazil definitely isn't.

Then there's the currency issue. While China has more than $1 trillion in offshore corporate debt outstanding, the nation has a $10.8 trillion economy. (The Indian tally is lower because of rules on foreign borrowing.)

Brazil Inc. had record defaults last year, and graft probes are widening to include some of the biggest companies. Petrobras alone has $52 billion of offshore bonds outstanding, and the corporate total is almost $280 billion in dollars, euros, yen and other currencies that have become more expensive after the real's 13.8 percent devaluation in the past 12 months. Brazil's economy, by comparison, is $1.8 trillion.

Then there are the metrics. The dollar-denominated MSCI Brazil index has a price/earnings ratio of 43.5 times, compared with 9.3 for China and 21.9 for India.

Certainly, a continued rebound in commodities would buoy corporate Brazil, as would a clearer sign that Dilma Rousseff, the unpopular president, is closer to being impeached. But those are big ifs, and in any case, the current froth is unlikely to translate quickly to increased dividends.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Christopher Langner in Singapore at

To contact the editor responsible for this story:
Paul Sillitoe at