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EYE ON BRAZIL: WHY WE ARE LONG PART 1
November Retail Sales data rose by the lowest percentage in 2 years, and it still looks great!

People looking for a negative story in today’s retail sales data from Brazil had an easy time finding one. The ( by now completely stale) numbers show that retail sales in total only grew by 5.3% Y/Y * three months ago -which was seized upon by Brazil Bears as a sure signal of pain to come for an economy were consumer spending accounts for more than half of GDP.

Taken on a relative basis however, the data released today has an altogether different complexion (see table of several key index components below). On relative basis 5.3% looks very healthy, while the 2 and 3 year growth stats are still in double digit territory. While there is no denying that automotive sales have fallen off a cliff (what in this world didn’t in November!), the near term impact on the Brazilian economy is softened somewhat by the almost complete foreign ownership of the industry there (Ford, GM , Fiat and VW combined account for over 80% of car sales with the remainder primarily divided between Japanese brands).

Obviously the Brazilian economy is going to slow in sympathy with global markets, but we stand by the argument for sustainable sales growth driven by domestic demand in Brazil even if it is merely in single digits. We are long Brazil via the EWZ etf and continue to believe that Brazil and China will outperform the rest of the developing world in the coming year.

Andrew Barber
Brazil

*all data presented seasonally adjusted