Contagion has largely been contained globally, expect for countries with high political risk situations (Argentina, Brazil, South Africa, and Turkey). Rising political risk has acted as an aggravating factor for investors.
Of these four countries, Brazil seems to be in the best economic shape. Its current account deficit stands at only 1% of GDP and it has enough foreign reserves (at $367bn) to efficiently defend its currency. The only negative macro data are linked to the high level of public debt, but since this is owned mostly by domestic holders (95%), the risk is more limited.
In addition, the latest economic data, especially leading indicators such as the Itaú Monthly GDP reading, tend to confirm economic activity is set to accelerate slightly. We believe that the current vulnerability seen in Brazil will prove short-lived as it is essentially a consequence of uncertainty surrounding the upcoming October election (the first round of voting is on October 7 and the second on October 28).