Am I being ignorant? A dive into Brazil's interest rates
I recently came across a Twitter post of my friend Olivier from
. He questioned how Nu holdings profits would look like at a 4% interest rate in Brazil, compared to the current 15%. I have a decent exposure to interest rates in Emerging markets and Brazil is my largest exposure because:Nu Holdings (4.6% position): 77% of deposits are from Brazil and the majority of profits are interest income from credit products.
Mercado Libre (6.3% position): Brazil as largest market with a big financial services segment.
Edenred (5.7% position): 19% of operating revenue comes from Brazil and >50% of LATAM float income.
Pluxee (1.3% position): 28% of operating revenue comes from Brazil and the vast majority of LATAM float income.
Overall this is a significant exposure to market dynamics that I have not dived into too deeply! I want to change that. As investors it’s important to be open to criticism and to challenge your own ideas. Sometimes we overlook obvious risks in an investment thesis or borrow conviction, nobody is immune against that. With that being said, let’s talk about impacts of interest rates and how likely a radical change in the LATAM interest rate environment is.