Could a stronger Brazil be part of a broader GEM rally? Brazil equities have been very much out of favour this year having underperformed the broader Emerging Market equity universe, says Vis Nayar, chief investment officer at Eastspring Investments in the latest 'CIO Views – Weekly Bulletin'.

However, at current levels, are they offering value? It's been a difficult year for Brazilian equities, after a very strong 2023. At the time of writing the Brazil equity market was down 6% year to date in local currency terms, and down
over 23% in USD terms.

Much of the negative sentiment in Brazil has been driven by loose fiscal policy and fears that the central bank will not be
able to tackle inflationary pressures despite significant hikes in its reference interest rate, the SELIC.

The SELIC rate has a history of huge swings and investors were hoping to see substantial cuts through this year (having
started at 11.75%). However, after a couple of cuts earlier in 2024, inflation expectations started to de-anchor, forcing the
central bank to reverse course. Last week, it hiked a further 100bps to 12.25%, and guided for additional hikes that would
bring SELIC to at least 14.25%.

Sentiment is now extremely negative, underscored by investor positioning data and the attractive stock valuations.

As President Lula currently faces personal health issues and declining approval ratings, market participants will eventually start pricing in the odds for the next election in 2026.

Taking a longer-term investment horizon view is key when picking stocks in Emerging Markets. Markets such as Brazil
get regularly swayed by negative headlines and emotional reactions. In such scenarios, disciplined investors with a
long-term views are very well positioned to capture attractive returns.

How could this year's picture change in 12 months?

A year ago, would an investor have anticipated the returns profile that played out in 2024?.

At the headline level investors have found the continued march of the US equity market, and its Magnificent 7 drivers,
the most inexorable story of the year.

However, with the path of the next 12 months anything but certain, could we see a narrowing of valuation discounts
between GEM and Developed markets – perhaps led by markets like Brazil?

Modest rises in India, China, Hong Kong, ASEAN markets could all be repeated in 2025 and supported by Latin
America. The contrarian could argue significant fiscal stimulus in China may change the whole picture in Asia &
GEM.

With uncertainty and volatility likely at the heart of 2025, diversification of assets and a robust attitude to risk will remain critical for investors as we slither towards the year of the snake!