Brazil Volatility Presents the Perfect Time to Invest

10th June 2016

Scan the press for news about Brazil and generally stories are scattered with words such as impeachment, corruption, bribery and recession. It is undeniable that the region and other emerging markets are volatile. But for leading fund managers such as Martin Gilbert, chief executive at Aberdeen Asset Management (a £3.58Bn FTSE based firm), it is this volatility that presents a perfect time to invest.

Brazilian gross domestic product (GDP), on the decline since 2010, finally entered negative territory in 2015 at -3.0 percent. That said, the economy managed to outperform expectations by shrinking less than expected in the first quarter, indicating Brazil may be close to hitting bottom after a confidence crisis scuttled demand and plunged the nation into its worst recession in decades.

With so much bad news emanating from Brazil, one might ask what’s there to like about this BRIC? The answer is simple. It offers value as there’s potential for a significant turnaround story. Much of the bad news about Brazil appears already priced into the market. “Confidence indexes – both retail and industrial -showed large improvements in April and May, and this is happening on the back of the government change. According to CNN Money, Brazil’s stock market is one of the world’s best this year with the market index Bovespa up by 14.1 percent so far while the Brazil investing iShares EFT (exchange Traded Fund – NYSE EWZ), a $3 Billion fund, has seen a close to 60% growth since January.

Exports rose 6.5 percent, following a 0.1 percent increase last quarter. Government consumption rose 1.1 percent, following a 2.9 percent drop.

Opinion on Brazil has just begun to turn, as many long-term investors remain on the sidelines. In addition, lower real wages and declining labour costs are making the country more attractive for foreign business when measured against regional Latin American peers. However, a continued investor confidence recovery ultimately will rest on whether real political change and reforms occur.

On being asked his opinion about Brazil, Martin Gilbert said “…the global investment community has been slow at picking up on the more optimistic outlook for emerging markets”

“It’s an unloved rally. No one is putting huge amounts of money in it,” he said. “It will gather momentum, but very slowly. I think people are recognizing [where the growth is].”

Brazil, which rapidly fell out of investor favour because of political turmoil, is one of Gilbert’s favourite markets at the moment.

So while the mainstream press continues to sell copy by painting Brazil black, the institutions continue to snap up value at discounted prices.

North East Brazil

The state of Piauí in North East Brazil is rowing against the tide of the economic crisis. It is of the very few states of the entire Brazilian federation that has enabled the approval of foreign credit operations, with funds totalling more than R $ 1.2 billion and has contracts in operation with public financial institutions such as the National Bank for Economic and Social Development (BNDES), Caixa Economica Federal (CEF) and Banco do Brazil, totalling approximately R $ 2 billion, the most ever released.

State Governor Wellington Dias worked long and hard to have funding endorsed by the federal government and the Brazilian Congress, as well as negotiating with the International Bank for Reconstruction and Development (IBRD) for investment in various areas. “It was a long battle with the federal government and with members of Congress so that we could have the support for the implementation of investment of 320 million dollars, now worth more than R $ 1 billion. We can and are now preparing all of these applications in the areas that we consider essential” commented governor Wellington Dias.

There are two credit operations with IBRD: financing for development policies, worth 200 million dollars, and Multisectoral Approach to financing in the amount of 120 million dollars. Both operations are moving together and support the same areas: Education, Health, Environment, Land tenure, Employment and Income Generation in Rural and Public Management Environment. The first operation supports the development of policies that have been implemented in the state, while the second supports the implementation of these policies, therefore, they go hand in hand.

For more information regarding a new, exciting, secure real estate investment in Northeast Brazil, please contact us for details.