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Investment in Brazil 'good value'

Date added: 18th May, 2010 at 09:58
(view all articles from May, 2010)

Categories: Economy

Investment in Brazil represents a good opportunity for strong returns given its stable economy and political landscape and its prospects for further growth.

This is the opinion of Dean Newman, head of emerging market equities at global investment management company Invesco Perpetual.

As one of the BRICs - a group of emerging economies that also includes Russia, India and China - it has drawn a lot of attention from investors recently, he said, especially given its richness in natural resources, with iron ore, gold, manganese, timber and hydroelectric power as well as a wide variety of agricultural products all strong in the country.

Although the nation's inflation rate is still low, which Mr Newman stated has seen equity and bond markets prosper and made credit available to households, it is growing and the central bank is expected to make efforts to stabilise it by increasing interest rates. So long as the rate of inflation stays within four and eight per cent, he noted, with interest rates between seven to 12 per cent, Brazil's economy will remain steady.

Unlike more developed economies, debt is not a major concern for the country, the executive explained, as it took measures in the 1990s to reign in its arrears for which it is now seeing the benefit. Although the global financial crisis has had a knock-on effect on the nation, its external debt, which includes that of both public and private sectors, is below the 60 per cent threshold that is seen to impact negatively on growth.

With both companies and consumers in a position to borrow, businesses are able to access low-cost financing and the demand for housing, white goods and cars has increased, he reported.

Brazil's equity market also saw a quick recovery in 2009 with stronger growth than in more developed countries expected this year. Although the equity market is no longer at "bargain basement levels", the expert said, valuation is still lower than in more advanced economies.

Lastly, he mentioned the increasingly market-friendly policies in Brazil, perhaps a result of its further integration with the US and the global economy, which also strengthened trade links.

In the latest issue of Perspectives, JP Morgan focused on Brazil as a good investment opportunity, citing fortuitous fiscal policies, social progress, private sector success and surging consumerism as major factors in its growth. The firm reported that Brazil was one of the last nations to enter recession and one of the first to recover from it, with Standard & Poor's, Fitch Ratings and Moody's Investor Services all recently upgrading the country's credit rating.

Dean Newman recommended small and mid-cap companies that are exposed to the domestic economy as the best sectors in which to invest. ADNFCR-1477-ID-19782855-ADNFCR