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Capital at risk. The value of investments and the income from them can fall as well as rise and are not guaranteed. Investors may not get back the amount originally invested.

Brazil is the largest economy in Latin America^[1]. It comprises 60% of the MSCI Latin America index,^[2] and has four of the region’s five largest companies. It is the highest weighting in the BlackRock Latin American Investment Trust^[3] (BRLA) and where we concentrate a significant share of our analytical resources and time. It is a source of many of the region’s richest opportunities.

However, while it is vital for the trust, in recent years, the Brazilian market has been overlooked and underappreciated by global investors. It has lost out to higher profile markets such as China, and more recently, India and is now a relatively small part of most emerging market benchmarks. It makes up just 5% of the MSCI Emerging Markets index, for example, which is dominated by global technology and communications companies such as TSMC, Samsung and Alibaba^[4].

However, this also brings opportunity. Where a stock market is overlooked, it often creates mispricing which skilled active managers can capitalize on. The MSCI Brazil Index trades at just over half the valuation of the wider MSCI Emerging Markets index^[5]. To take advantage of this for the BlackRock Latin American Investment Trust, our analysts frequently travel to Brazil. Having boots on the ground, allows us to evaluate a range of opportunities, finding companies where the prospects for growth may have been underappreciated by the market.

There are several reasons why Brazil deserves more attention from global investors. One of them being the advantageous geopolitical position of Brazil. With well-established diplomatic ties to both Eastern and Western nations, where the US and China is now Brazil’s two largest trading partners, the country stands out as a reliable trade ally^[6]. Particularly important is the trade of its critical commodities. Its ability to trade freely with each side is likely to improve its economic position in the next few years, we believe.

H2: Interest rates in Brazil are heading in the right direction

Brazil is also in a sweet spot when it comes to interest rates,  as a result of the Central Bank’s swift reaction to the increase in inflation we were seeing in the aftermath of the Covid-19 pandemic. Brazil has operated with one of the highest real interest rates in the world for a period of time, resulting in inflationary pressures already subsiding, and leaving the Central Bank in a position to cut rates. We anticipate further reductions, particularly if the US Federal Reserve ceases its own rate hikes.

Lower rates would be good for the economy – it would allow for consumption demand to pick up and economic activity to get stronger. The OECD has already upgraded its economic growth forecasts from 1.2% to 1.9% in 2024^[7] and there could be scope for further improvement. Cuts would also help flows into the stock market. With rates so high, international and domestic investors have tended to prefer the bond market, but this may reverse if interest rates fall and bond yields drop.

H2: Why investing in Brazil presents opportunity

There are diverse opportunities in the Brazilian market. While the country might be best known for resources and energy companies such as Vale and Petrobras, it also has retail and healthcare companies with a strong pathway of growth. The opportunity set in Brazil is likely to diversify further in 2024, with more than 100 companies waiting to come to market^[8]. These companies are coming from a range of different sectors, including infrastructure and technology. It is an exciting time to be looking at the Brazilian market.

Brazil is becoming an increasingly interesting markets and merits a closer look from investors. On BRLA, we believe Brazil is in a sweet spot for growth over the next few years, which provides a compelling backdrop for its companies and stock markets to thrive.

For more information on how to access the opportunities presented in Latin America, please visit www.blackrock.com/uk/brla

Risk Warnings

Capital at risk. The value of investments and the income from them can fall as well as rise and are not guaranteed. Investors may not get back the amount originally invested.

Reference to the names of each company mentioned in this communication is merely for explaining the investment strategy, and should not be construed as investment advice or investment recommendation of those companies.

BlackRock Latin American Investment Trust specific risks

Counterparty Risk: The insolvency of any institutions providing services such as safekeeping of assets or acting as counterparty to derivatives or other instruments, may expose the Fund to financial loss.

Currency Risk: The Fund invests in other currencies. Changes in exchange rates will therefore affect the value of the investment.

Emerging Markets: Emerging markets are generally more sensitive to economic and political conditions than developed markets. Other factors include greater 'Liquidity Risk', restrictions on investment or transfer of assets and failed/delayed delivery of securities or payments to the Fund.

Gearing Risk: Investment strategies, such as borrowing, used by the Trust can result in even larger losses suffered when the value of the underlying investments fall.

Important Information

In the UK this is issued by BlackRock Investment Management (UK) Limited, authorised and regulated by the Financial Conduct Authority. Registered office: 12 Throgmorton Avenue, London, EC2N 2DL. Tel: + 44 (0)20 7743 3000. Registered in England and Wales No. 02020394. For your protection telephone calls are usually recorded. Please refer to the Financial Conduct Authority website for a list of authorised activities conducted by BlackRock.

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Net Asset Value (NAV) performance is not the same as share price performance, and shareholders may realise returns that are lower or higher than NAV performance.

The investment trusts listed above currently conduct their affairs so that their securities can be recommended by IFAs to ordinary retail investors in accordance with the Financial Conduct Authority’s rules in relation to nonmainstream investment products and intend to continue to do so for the foreseeable future. The securities are excluded from the Financial Conduct Authority’s restrictions which apply to non-mainstream investment products because they are securities issued by investment trusts. Investors should understand all characteristics of the funds objective before investing. For information on investor rights and how to raise complaints please go to https://www.blackrock.com/corporate/compliance/investor-right available in local language in registered jurisdictions.

BlackRock has not considered the suitability of this investment against your individual needs and risk tolerance. To ensure you understand whether our product is suitable, please read the fund specific risks in the Key Investor Document (KID) which gives more information about the risk profile of the investment. The KID and other documentation are available on the relevant product pages at www.blackrock.co.uk/its. We recommend you seek independent professional advice prior to investing.

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