The Finance Professionals' Post

Update on Brazil: More Than a One-Note Samba, But Changing Key

Worldview first covered Brazil in the Winter 2009 edition of The Investment Professional. At the time, when it was not entirely clear that the dramatic crash of late 2008 had fully run its course, this column argued that investors willing to invest or hold on to their Brazilian exposure would likely find their patience rewarded. There were several arguments in favor of Brazil:

1. Extensive Brazilian experience in surviving and adapting to economic shocks.
2. Large foreign reserves and manageable debt loads, shielding Brazil’s government from fiscal and political crisis.
3. Highly professionalized fiscal and monetary authorities.
4. A substantial domestic sector that could buffer reduced international demand.
5. A more diversified export base than generally appreciated by most investors.
6. (Exports diversified by both export destination and industry.)
7. Foreign investors predisposed to run at the first sign of trouble in Brazil, providing an opportunity to enter at attractive valuations.
8. Attractive correlation (i.e., diversification) features.

Surfing the Tsunami: Brazilian Markets and the Global Crisis

Brazilians often point out proudly how blessed their land is. “Brazil has no natural disasters: no earthquakes, no tornadoes, no volcanoes, no hurricanes,” they say. Some add, chuckling lightly, “Our disasters are all man-made!”

The financial crisis engulfing the globe has arrived recently on Brazil’s shores. Brazil is no stranger to financial and political stress; indeed, over the last thirty years, the country has endured debt crises, extended hyperinflation, currency crashes, seven currency changes, economic recession, unemployment, the transition from military to civilian government, presidential resignation to avoid impeachment, banking failures, and, more recently, a period of rapid domestic and export growth that breaks with traditional experience. The consistent theme throughout these challenging years has been Brazil’s resilience: both economic and social.