“The good news, to relieve all this gloom, is that a democracy is inherently self-correcting. Here, the people are sovereign. Inept political leaders can be replaced. Foolish policies can be changed. Disastrous mistakes can be reversed.” – Ted Sorensen, JFK speechwriter
The notion democracies can heal themselves is a reason not to abandon stocks, even when the outlook seems bleak. It is darkest before dawn precisely because darkness precipitates the change that brings about a better day.
The latest instance of this is Brazil – among the worlds worst performing markets last year (-42%), but this years best (+29%). Brazil’s improvement comes after it was deemed “hopeless” and “irredeemable.”Brazil is suffering, as The Economist put it, “the longest recession in a century; the biggest bribery scandal in history; the most unpopular leader in living memory.”
Now, the ouster of the country’s embattled president has become increasingly likely amid massive, widespread protests. A political shake-up is precisely what the country needs. Are these the first signs of a rising sun for Brazil? It’s far too early to say. But the outlook is less negative, and that means better performance among Brazilian stocks and emerging markets in general thus far in 2016.