Investing in emerging markets: Russia and Brazil

Marikaby Marika Nicastro, a Junior Financial Analyst at
I Know First
and enrolled at a Business Management program at the Luiss University in Rome, Italy.


Investing in emerging markets: Russia and Brazil


  • Risks related to invest in emerging markets
  • Should investors buy these stocks?
  • Russia as one of the emerging markets favorite for 2017
  • How US election affects Russian economy
  • Will Brazil come out of the ditch in 2017?
    Image result for emerging markets               (source: Google)

Risks related to invest in emerging markets

Investing in emerging markets seems exciting because it provides higher return than the developed markets. It is due to the fact that there are a lot of risks linked to its investment opportunities. Investors should carefully take into account all these risks associated with the emerging markets before planning investments.

Firstly, investments will take place in the emerging markets, it means that returns are affected by changes in the value of both your currency and the emerging-market currency.
Secondly, the risk of sudden politic and social changes is high.
Furthermore, emerging markets are less liquid that those in the developed countries. It prevents the investors from realizing the benefits of fast transactions. This market imperfection results in both higher broker fees since finding counter parties is more difficult and in the risk that transactions will not be filled at the current price.
Worse still, political uncertainty prevents the economy from making the right decisions which could lead to the economic growth and from stopping the spread of corruption across the national institutions.

Should investors buy these stocks?

Despite the risks linked to investing in emerging market, investors should have these stocks in their portfolio for several reasons.

Firstly, emerging markets represent the possibility of diversification. Since the emerging markets are less correlated to developed markets, having different type of stocks in portfolio not connected to the others means a more efficient management of risks.
Secondly, emerging markets possess a range of favourable characteristics that increase the potential for strong future growth. In most emerging countries, the population growth has been more than twice of developed markets and gross domestic product (GDP) growth is estimated to be more than 2.5x developed markets outside the U.S.
Moreover, roughly 80% of the world’s population lives in emerging markets and they are experiencing increasing standard of wealth. It means that consumption is likely to grow strongly.

Russia as one of the emerging markets favourites for 2017

Image result for Russia

Among all the emerging markets, Russia is considered one of the favourite for 2017.
After two years of recession, Russian economy is now rising, the political climate is improving and the ruble has become more profitable. Russia is the world’s largest country in terms of land and it boasts an excellent educational system showing the highest literacy rates. Moreover, it’s one of the world’s leading producers of oil and gas. After the OPEC agreement, Russia benefits from the increase of oil price which have risen nearly 20 per cent since the agreement was made.

(Source: Google)

How US election affects Russian economy

The election of Donald J Trump as the 45th President of the United States caused disappointment across the world. Despite that, few countries celebrated the event. One of them was Russia. The main reason is the expectation of a better US-Russian relation which would guarantee Russian interests.
After two years of recession, Putin hopes that the economic sanctions imposed after the annexation of Crimea will be lifted. Moreover, Trump’s victory was perceived as a sign that at least there will be no war. Russian claim that Obama’s perceived “weakness” encouraged Putin to adopt more aggressive policies both at home and abroad, and they hope Trump will be a “tough Republican” keeping Putin quiet.

Mechel PAO is one of Russia’s leading mining and metals companies, comprising producers of coal, iron ore in concentrate, steel, rolled steel products. Headquartered in Moscow, sells its products in Russia and overseas, and is formally known as Public Joint Stock Company Mechel. The estimated revenue for Mechel PAO is 4.12 Billion.

I Know First Algorithm had correctly predicted the Mechel PAO (NYSE:MLT) stock movement: MTL was the top performing prediction with a return of 125.35% in 3 months (10/16/2016 – 01/16/2017).


Will Brazil come out of the ditch in 2017?

(Source: Google)

Brazil provides an example of growth and modernization among the emerging markets.
Rio hosted the Olympic Games 2016, showing the Brazilian power as well as its structural weaknesses and contradictions. Although the country is facing a precarious economic and political situation, Brazilian stocks jumped after the country’s central bank cut interest rates more than expected. According to the Banco Central do Brasil’s point of view, the lower inflation was compatible with a larger interest rate: the cut was 50 basis points higher than most economists’ expectation.
Brazil banks were the biggest beneficiaries of this move.
Bradesco is one of the biggest banking and financial services companies in Brazil. The company operates through two segments, Banking; and Insurance, Pension Plans and Capitalization Bond. It accepts various deposit products, such as demand and time deposits, checking and savings accounts, interbank deposits from financial institutions, and accounts for salary purposes. Banco Bradesco S.A. (NYSE:BBD) reported the earnings of $0.25/Share in the last quarter where the estimated EPS by analysts was $0.23/share. The difference between the expected and actual EPS was $0.02/share, which represents an Earnings surprise of 8.7%.

I Know First Algorithm had correctly predicted the Banco Bradesco S.A. (NYSE:BBD) stock movement: BBD was the top performing prediction with a return of 163.77%. in 1 year (01/14/2016 – 01/14/2017).

I Know First Algorithm Heatmap Explanation

The sign of the signal tells in which direction the asset price is expected to go (positive = to go up = Long, negative = to drop = Short position), the signal strength is related to the magnitude of the expected return and is used for ranking purposes of the investment opportunities.

Predictability is the actual fitness function being optimized every day, and can be simplified explained as the correlation based quality measure of the signal. This is a unique indicator of the I Know First algorithm, allowing the user to separate and focus on the most predictable assets according to the algorithm. Ranging between -1 and 1, one should focus on predictability levels significantly above 0 in order to fill confident about/trust the signal.