A growing number of foreign investors are piling into Brazil, anticipating that it may gain an investment grade rating sooner rather than later as it appears relatively unscathed by the global credit crunch. After Moody's Investors Service raised Brazil's credit rating in August to one notch below investment grade, most analysts forecast another upgrade would only come in late 2008 or early 2009.
Now, as the credit crisis subsides and Brazilian markets rally to record highs, some say investment grade could be within reach before the new year. "Brazil is going to attain investment grade by the end of the year or by early next year at the latest, with at least one of the rating agencies," said Guilherme da Nobrega, an economist at Itau Corretora in Sao Paulo. "The market crisis of the last two months ended up showing the country is well positioned" for an upgrade, he said.
Fitch Ratings and Standard & Poor's, the other major credit rating agencies besides Moody's, also rate Brazil's sovereign debt just shy of investment grade. An investment grade rating would give Brazil's public and private sectors access to lower borrowing costs, helping to boost the economy by making large-scale investment projects more feasible.
It would also attract a new wave of investors into Brazil's fixed-income and stock markets, since many pension funds in the United States are barred from parking cash in countries with lower credit ratings.
INVESTMENT FLOWS ON THE RISE With investment grade looming, more investors are already setting their sights on Brazil, Latin America's largest economy. Investment flows to the country are rising sharply, recently pushing the Bovespa index of the Sao Paulo Stock Exchange to a slew of records and the Brazilian real to a seven-year high.
Foreign portfolio investments in Brazil more than tripled to $33.3 billion between January and August of this year from $9.05 billion in the same period in 2006, according to central bank data.
A large portion of that money is ending up in the stock market, which has rallied about 40 percent this year. Investments in Brazilian shares totalled $13.4 billion between January and August, up from just $3.06 billion in the same period a year ago.
"What we've noticed about foreign investors is that initially only the most aggressive, like hedge funds, were investing in Brazil," said Manoel Felix Cintra Neto, president of the Sao Paulo Commodities and Futures Exchange, or BM&F.
"Now we're seeing more and more long-term investors." Some analysts say the investment flows are likely to keep coming regardless of whether Brazil attains investment grade.
"Investment grade by itself will spark more investment flows ... but these days it's not as important as it used to be," said Alexandre Mathias, a director at Unibanco Asset Management in Sao Paulo.
"As a consequence of what the country has done to reach investment grade healthy monetary policy, reasonably healthy fiscal policy and a benign foreign exchange policy you already have an auspicious environment for investment."
Comments
Comments are closed.