Tim Seymour:  Brazilian stocks have been a nasty trade for a long time, especially for casual players who bought into the short-lived spikes on the Bovespa. Long-term silver lining here.

For one thing, local economists currently expect to see inflation slow only slightly over the next year, to a robust 5.11% annualized rate.

Meanwhile, they also think the Brazilian GDP will edge up 4.1% next year, a little slower than the 4.2% they previously expected.

Strong inflation and slowing growth is classically not good for the markets or the underlying economic fundamentals that drive the market.

However, in context, even 5% inflation represents a significant decrease from the 6.5% rate currently plaguing Brazilian consumers and companies alike.

Giving up just 1/10 of a percentage point of growth in exchange for eliminating 23% of that kind of inflation seems like a worthy deal for the central bank.

And in fact, given these dynamics in play, the Brazilian real (NYSE:BZF) finally looks very vulnerable to the downside. You can bet that makes the central bank extremely happy, since it was an overly strong real that got Brazil into this situation to begin with — and president Dilma Rousseff eventually wants to drive interest rates back downward.

But with the goal of getting inflation under 4.5%, it is likely that Dilma will not get that wish before 2012 at the earliest.

Bottom line: When the dust clears, Brazil will be a great buy. But as yet, the dust has not cleared. Downside for the real translates into downside for WisdomTree Dreyfus Brazilian Real (NYSE:BZF). Lack of near-term upside for the Bovespa means funds like iShares MSCI Brazil Index (NYSE:EWZ) have correspondingly little upside ahead.

Written By Tim Seymour From Emerging Money

Emerging Money provides insightful and timely information about the increasingly important world of Emerging Market investments. CNBC Emerging Markets Contributor Tim Seymour leads the team of Emerging Money to bring you cutting edge global news and analysis.

About Tim Seymour: Tim is a founder of Emerging Money. He is a founder and Managing Partner at Seygem Asset Management, and The Emerging Markets Contributor to CNBC. Seygem Asset Management focuses on investing throughout the global emerging markets asset class. With a view that emerging and developing economies will continue to outpace the economic growth and advancement of developed economies, Seymour has devoted a career to investing in the dominant markets of tomorrow, today. Seymour’s career has included significant experience in both alternative asset management (hedge funds) and capital markets, having launched two hedge funds, and built the largest Russian broker dealer in the USA. Seymour started his career at UBS, focusing on international credit (cash, swaps, forex) in a specialized hedge fund group (New York). Seymour completed the firm’s training program after graduating with an MBA in international finance from Fordham University. Seymour received his undergraduate degree at Georgetown University.

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