Wednesday, September 23, 2009

Investing in Brazil

This article was originally about a series that BNN did on Brazil yesterday. The series had high praise for doing business in Brazil.

Moody has just announced that Brazil's rating was raised to Investment Grade after they built record foreign reserves and averted a prolonged recession amid the global financial crisis. According to Moody, Brazil has “strong economic and financial resilience” during the worldwide slowdown. Moody was slow. It was one year ago that Standard & Poor’s and Fitch Ratings increased their ratings for Brazil as well.

Bovespa stock market rose to a 14-month high and the currency jumped the most in a month. The country’s foreign reserves are now $223 billion. EWZ, the Brazilian climbed +2.05%, and BZF, the currency ETF went up another +1.46%.

Brazil is the second country in South America after Chile to have an investment grade rating from Moody’s. We will also have an article about Chile soon.

Yesterday, BNN had a series on Investing in Brazil as well. Here are the three videos, with links to watch, and summaries.

Video 1: Oscar Sanchez, Chief Economist for Latin America, ScotiaBank, Economy

-Brazil has been naturally switching its trade to Asia, mainly China
-150B investment in oil in the next 5 years
-Large internal market, but also looking outside.
-Next year will be a clear surprise, will grown more than projected (5%).
-Inflation 4.3%
-Brazilian economy not as open, so it weathered the storm better.
-Unemployment rates falling
-Creation rising every month for the last3 months
-Consumers have access to credit
-Interest rates historical lows (still 8%, see our post on the USD carry trade)
-More arable land yet to be put into production than more of the entire Europe.
-Huge iron ore reserves
-Country following its own cycle.
-There are elections next year, so expect fiscal input to continue.

Video 2. Stock markets

-Stock market up 110% including the exchange rate (you have read that here!).
-P/E 25, high, but it is an emerging market, richly valued, cannot compared to non-growth countries, must be compared to MSCI (emerging markets) which has a PE of 20
-Looking at companies that benefit from young population: brewery, cell phones

Video 3: Doing Business in Brazil, with a lawyer and a Daimond exploration company CEO.

-Fantastic place to do business
-Very well-educated population, strong employees, know how to deal with bureaucracy
-Under-explored for mineral companies
-Airlines work very well, low prices, could use a better rail network
-Free-trade, Brazil focusses on WTO not on bilateral agreements
-Canadian government sending positive messages that Canada wants more business with Brazil
-PBR: has government as partner, it's a huge plus but some concerns of political influencing
-Have not encountered corruption, but there are layers of bureaucracy

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