Brazil

[winston]

Capital Economics: Brazil Economy Faces Bubble Risk
1/18/2010 11:08 PM ET

(RTTNews) - Brazil resurgent recovery from the global downturn has raised fears that the economy is overheating, although this development is unlikely, economists at Capital Economics said on Monday.

The Brazilian economy has staged a robust recovery over the second half of 2009. The economy expanded 1.3% sequentially in the third quarter and is tipped to grow around 1.5% in the final quarter.

Yet, the unbalanced nature of Brazil's recovery - and its reliance on a boom in domestic demand in particular - is raising fears of a bubble, economists at the firm said. The real effective exchange rate (REER), which has served as an early warning sign of an overheating economy, is currently nearly 50% above its long-term average. Meanwhile, Brazil's price / earnings ratio based on the MSCI Index is about 40% above its long run average, suggesting a bubble in the financial markets.

On the flip side, other economic indicators show a more optimistic picture. Brazil's current account deficit is a mere 1% of gross domestic product, while its short-term external debt is just 2.3% of GDP. And although inflation is particulary high in Brazil, it is still below target levels.

The economists warned that the economy faces a plausible risk of overheating, especially if commodity prices continue to rise and risk appetite prevails. However, the economists forecast commodity prices to fall later this year as the global recovery slows down and curb any bubbles that may arise. The Brazilian economy is projected to grow 5% in 2010, but slow to about 3% in 2011.

by RTT Staff Writer

[kennynah]

there is this ridiculous "sci-fi" movie by the name of Brazil, which I cant bring myself to continue watching after 15mins and to mutilate the "movie" thread by posting it there...

[winston]

After giving up on India yesterday, I may now have to also give up on Brazil too ...

Brazil Tax May Encourage More Measures, Dennis Says By Veronica Navarro Espinosa

Jan. 19 (Bloomberg) -- Brazil’s success in curbing the rally in the real by imposing a tax on foreigners’ purchases of stocks and bonds is a “scary” and “dangerous” precedent, said Citigroup Inc. equity strategist Geoffrey Dennis.

The success of the tax may encourage officials to adopt more measures to stem the currency’s appreciation, Dennis said at a conference organized by the Brazilian-American Chamber of Commerce in New York.

“It’s kind of scary because it might mean that the government wants to do more things over time should the currency stay strong,” Dennis said.

The real has weakened 3.1 percent against the dollar since the government implemented a 2 percent tax on the purchases of equity and fixed-income assets by overseas investors on Oct. 19. The currency surged 33 percent last year, the best performance among 16 major currencies tracked by Bloomberg, as an accelerating economic recovery and growing demand for commodities lured foreign investors to the country.

“Part of the success of the tax comes about because there’s an implicit threat by the government to actually increase the tax if the currency continues to appreciate,” Tony Volpon, a Latin America strategist for Nomura Holdings Inc., said at the conference. “The government has had a surprising success in putting the fear in the carry-trade community.”

Brazil said Nov. 18 it would begin taxing the issuance of depositary receipts in international markets in a bid to prevent companies from selling shares abroad rather than locally.

The government may also sell local debt to raise cash that can be used to buy dollars in the foreign-exchange market and help stem the real’s rally, Treasury Secretary Arno Augustin said Jan. 13.

Proceeds from the bond sales would be turned over to the government’s sovereign-wealth fund, adding to its 16.2 billion real ($9.2 billion) of assets so that it can buy more dollars, Augustin said. President Luiz Inacio Lula da Silva last month authorized the fund to purchase dollars to create another government-related buyer of U.S. currency in addition to the central bank.

http://www.bloomberg.com/apps/news?pid= ... HkmMWTNSZs

[winston]

One on One with Brazil's Richest Man

Eike Batista is ranked 61st on Forbes' list of the world's billionaires

http://www.cnbc.com/id/15840232?video=1 ... estorPlace

[winston]

=DJ HEARD ON THE STREET: Cracks In The BRICs? By Liam Denning

A DOW JONES COLUMN

As all else has crumbled, the BRICs have come through the crisis looking relatively solid. Yet clear differences have opened up.

Two members under the spotlight are Brazil and China. Emerging markets fund manager Mark Mobius was quoted recently saying the Latin American giant's economy was 'more sustainable' than that of the Asian powerhouse, mainly due to Brazil's self-sufficiency in major commodities.

Resource riches help, but hardly guarantee ever increasing prosperity: Just ask that other BRIC, Russia. Indeed, Brazil's commodity exports represent a potential source of weakness near-term. Beijing's efforts to tighten monetary policy will likely reduce Chinese demand for raw materials. Brazilian industries like energy and iron ore production, which make up a disproportionate of the stock market, would bear the brunt.

Exports, however, account for a relatively small proportion of Brazil's economy. Consumer spending is more important, accounting for about 60%, according to Credit Suisse.

In China, where per capita GDP is about two-thirds that of Brazil, consumption is just 35% of the economy. Exports, backed by very heavy investment in industrial capacity, rule.

Lombard Street Research notes industrial production in China surged to 16% above its pre-crisis peak in the fourth quarter of 2009, supercharged by rampant bank lending. Core inflation remains suppressed by the imbalance of supply compared with consumption and a system of subsidies. But rampant lending has fueled real estate bubbles and socially sensitive items like food and energy remain subject to inflationary spikes.

Brazil faces higher inflation, with consumer prices up 4.6% year-on-year in January. Monetary tightening looks likely. However, industrial utilization rates are still low, according to Lombard Street. Meanwhile, Brazil's memory of hyperinflation in the early 1990s means real interest rates even now are high, at over 4%.

Such conservatism risks strangling recovery. But a silver lining is well-capitalized banks and structural restraints on credit. Loosening these would provide fuel to stoke the engine of consumer demand should it falter.

In order to do this safely Brazil still needs to address the rigidities that stoke inflation, not least restrictive labor markets and inadequate infrastructure investment. If Brazil can address these capital allocation and regulatory issues, it can capitalize on its head start in developing a sustainable consumer economy -- the critical challenge for all the BRICs.

In addition, Brazil enjoys more favorable demographics than China. If the latter hopes to transition to a broad consumer economy, it had better get a move on: China's fertility rate is already below the replacement rate for the population and the prime 15-64 years old age group will peak in 2015, according to World Bank projections. Brazil's is set to keep rising until 2045. Such resources trump anything lying beneath Brazilian soil.


Source: Dow Jones Newswire

[winston]

Brazil’s Stock Market is Heating Up at Just the Right Time By Jason Simpkins, Money Morning

With risk mounting in other places around the world, Brazil's stock market is heating up at just the right time. The country's benchmark Bovespa Index has risen for four straight days since hitting its cheapest level since May last week.

What's more is that Brazil's stocks are poised to surge even further as its economy storms back from recession and investment firms rush to cash in on the country's upside.

http://moneymorning.com/2010/03/03/brazil-stock-market/

[winston]

Brazil Stocks to Climb 22% This Year, BlackRock Says (Update1) By Tal Barak Harif

March 19 (Bloomberg) -- Brazilian stocks will gain 22 percent this year, led by consumer and housing companies as the economy grows as much as 6 percent, BlackRock Inc.’s William Landers said.

The benchmark Bovespa index will touch 85,000 this year from yesterday’s level, Landers, who oversees $8.6 billion at the firm’s five Latin America equity funds, said. Earnings growth will climb as much as 40 percent in 2010, he added.

Brazil’s Bovespa dropped 2.2 percent from its 2010 peak on Jan. 6 amid concern that China’s lending curbs and widening budget deficits in Europe will slow the global economic recovery. The gauge, up 0.8 percent this year after rallying 83 percent in 2009, is valued at 18.7 times reported earnings, more than its four-year average of 14.2 times, according to data compiled by Bloomberg.

“Brazil will continue to do well this year,” he said in an interview in his office in Plainsboro, New Jersey. “Whether you have these momentary periods of risk aversion I don’t think it’s going to have a major impact on Brazilian market.”

Landers’ BlackRock Latin America Fund beat 94 percent of competitors last year after surging 118 percent, according to Bloomberg data. The fund has gained 0.2 percent this year.

The Bovespa fell 1.7 percent to 68,951.95 at 11:26 a.m. in New York after policy makers left interest rates at a record low on March 17 and as billionaire Eike Batista raised less than he sought for OSX Brasil SA’s initial share sale.

“The valuations these companies are being sold at are not in line with what investors are ready to pay for them,” Landers said. “That’s why you see transactions being priced below the range, deals being pushed back.”

http://www.bloomberg.com/apps/news?pid= ... jD.iKF39Hw

[winston]

Swiss Re Says Brazil to See High Growth on Spending (Update2) By Alexander Cuadros

April 8 (Bloomberg) -- Swiss Reinsurance Co., the world’s second-biggest reinsurer, said Brazil’s infrastructure spending as it prepares for the 2014 World Cup soccer tournament and the 2016 Olympics means the country will be a “high-growth market” for the company.

Brazil said in January it plans to spend 19.5 billion reais ($11 billion) to improve infrastructure and prepare for the World Cup in two years. Rio de Janeiro state, whose capital will host the Olympics, expects as much as $90 billion in investments in the next three years, primarily in shipbuilding, iron and steel manufacturing and nuclear power, Governor Sergio Cabral said last week.

Brazil’s planned infrastructure investments mean it “will be a high-growth market for some time to come,” Bell said. He declined to say how much he expected revenue in the region to increase.

http://www.bloomberg.com/apps/news?pid= ... Bo_Cj9W1QM

[winston]

I would be a bit careful about investing in the Brazil ETF now ..

Brazil Gets Aggressive Rate Hike, Real Upside Limited
By BBH FX Strategy

BRL was boosted by a larger-than-expected 75-bp hike last night to 9.5%. Some (including us) leaned toward 75 bp, but most expected 50 bp.

The market is now looking for a year-end policy rate of 11.75%, which implies another 225 bp of tightening.

http://www.thestreet.com/story/10740903 ... ooyah_html

[millionairemind]

I vaguely remember reading about what Peter Lynch said regarding high interest rates.

Something to the effect "If bonds are offering higher rates than the historical returns on stocks, buy bonds"...