Brazil’s emerging investment opportunities

Brazil is the country of the future and always will be, suggests the old joke.

Previous periods of strong growth in Brazil have ended in turmoil, but the country has come a long way over the last few years and finally seems set to fulfils its potential and develop into an advanced economy.

Over the past decade, inflation has been tamed, with an operationally independent central bank keeping it below 10% for almost all of the past decade, compared with 2,600% in 1993.

Growth is running at 4-5% a year, external debt has declined dramatically, commodity exports are underpinning large trade surpluses, and foreign reserves have ballooned to $200bn. All this makes Brazil far less vulnerable to global crisis.

And the country has recently received a “strong vote of confidence” from ratings agency Standard & Poor’s (S&P), says Economist.com. S&P awarded Brazil’s foreign-currency-denominated debt investment-grade status. It claims Brazil’s pragmatic polices have created a “sounder foundation for economic growth and fiscal improvement over the past five years look set to continue.

The upgrade, which in due course seems likely to be followed by upgrades from the other major ratings agencies, Moody’s and Fitch, will gradually lower the cost of capital in Brazil as borrowing costs fall with a better credit rating and money flows into the country further boosting growth prospects.

International funds that are barred from buying sub-investment-grade bonds will now be eyeing up Brazil and interest among global equity investors should mount amid optimism over future growths; with new fixed-income and equity flows and more foreign direct investment on the cards, the move is a “strong long-term positive for Brazil’s financial markets”, says Citigroup’s Geoffrey Dennis.

The stockmarket has gained over 8% since the upgrade and Bovespa index is at a new record of around 70,000; it has risen sevenfold since 2002.