Penn Wealth Publishing

2019.09.15 Penn Wealth Report Vol 7 Issue 04

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6 penn wealth Report volume 7 iSSue 04 15 Sep 2019 Copyright 2019. All Rights Reserved. tactical Awareness Brazil's Bold New Leader Tackles the "Untouchable" By tackling pension reform first, Bolsonaro has proven he means business. Q uick, name the three largest economies in the Western Hemisphere. After the obvious first answer, most people might guess Canada and Mexico. Actually, following the United States and its $21 trillion economy, the South American country of Brazil clocks in as the world's ninth-largest econ- omy and the hemisphere's second, with a GDP north of $2 trillion. (Canada is the third-largest, by the way.) Despite the country's dalliances with socialism, a condition which permeates much of Central and South America, Brazilians slowly tired of their recent left-leaning presidents, Lula da Silva and his hand- picked successor, Dilma Rousseff, after the first was imprisoned on bribery charges and the second was impeached for "manipulating" the budget. e coun- try's current president, Jair Bolsonaro, rode to victory on an anti-crime, pro-growth platform, promising to root out rampant government corruption. Before winning the general election with 55% of the vote, Bolsonaro was stabbed on the campaign trail for espousing such law-and-order policies. So much for politicians saying one thing to get elected and then doing a backward shuffle—about a month after being sworn in, the Bolsonaro adminis- tration presented its plan to overhaul an "untouchable": the country's retirement system. Sure, the national pension system is insol- vent, but most politicians in most other countries would simply punt. Not so, Bolsonaro. e plan, which was immediately watered down in the lower cham- ber of congress, would still raise the minimum retire- ment age and increase the amount workers are required to put into the system. Right now, some workers are allowed to retire in their 40s with a relatively lucrative pay and benefits package for the rest of their lives. Hence, the reason why the system is insolvent. After the overhaul is approved and signed, which now appears all but certain, the federal govern- ment should save somewhere around $250 billion over the next deacde. One of the shining lights of Latin America. With a pro-growth president in charge of the coun- try, pension reform is the first of a number of changes designed to strengthen Brazil's economy. In the most recent quarter, government spending saw its biggest drop in five years, and economic output grew a healthy 3.2% from the prior quarter. While we have been underweighting Latin America, Brazil has become the one bright spot. From an investment standpoint, two of our favor- ites for exposure to the country are the iShares MSCI Brazil ETF (EWZ $42) and the First Trust Brazil AlphaDEX Fund (FBZ $16). With an average market cap of $42 billion, EWZ holds 60 primarily large-cap Brazilian companies, while FBZ looks to select firms best positioned for outperformance. is means more small- to mid-sized companies ($9.4B average market cap) and a higher level of risk. Global Strategy: Latin America Looking forward, Brazil will continue to be the hemisphere's second-strongest economy.

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