Corruption Scandal Fails to Burnish Brazil´s Image as World-Class Travel Destination… At Least for the Time Being

A controversy over corruption allegations that has dogged the Brazilian government and spooked investors showed signs of waning earlier this week.

Many investors have been overweight in Brazil for much of the past two years. Brazil´s stocks, bonds and currency slumped as investors scrambled to reduce their exposure. There were even fears that further revelations would implicate senior ministers or President Lula himself, prompting a run on Brazilian assets. When no such revelations emerged, investors are now returning.

Yet some observers feel investors may be ignoring signs of further danger ahead in the rush to seek returns from high-yielding Brazilian assets.

But further bad news could still emerge. Even if the government weathers this latest storm, Brazil´s currency is alarmingly overvalued and headed for a fall.

For now it is easy to ignore such warnings. But it is becoming less easy to ignore the signs that something is seriously wrong in Brasilia. Investors will need steelier nerves than ever to stay the course, or perhaps just rosier-tinted glasses.