Jpmorgan Brazil Investment Share Discussion Threads

[loganair] 21/12/2014 21:02

BRASILIA: Brazil’s trailing 12-month current account deficit climbed to its highest level in 13 years in November, highlighting the erosion in the country’s external accounts as dwindling commodity prices hurt its trade balance.

In the 12 months through November, Brazil’s current account deficit was equivalent to 4.05 per cent of its gross domestic product, the highest since December of 2001.

The country’s current account gap was $9.333 billion in November, surpassing market forecasts for a deficit of $8.6 billion, according to central bank data released recently.

The central bank also revealed its forecasts for the current account gap and foreign direct investment in 2015 at $83.5 billion and $65 billion, respectively.

For this year the central bank expects the current account deficit to reach $86.2 billion - its widest year-end figure since the statistical series started in 1947.

A drop in the price of key Brazilian exports like iron ore and soy have dragged down export income while a sharp depreciation of the local currency has increased the cost of imports. Brazil is expected to post its first annual trade deficit in more than a decade this year.

Meanwhile, Brazil pledged on Friday to suspend financial support for state development bank BNDES next year, marking a major policy shift that will help trim billions of reais in subsidies that have weighed down public finances.

The decision was announced by Paulo Rogerio Caffarelli, the finance minister’s No. 2 official, at the end of a policymaking meeting in Brasilia. To make up for the loss of support from the National Treasury, Caffarelli said BNDES should use proceeds from interest income and tap capital markets for new funding. Since 2009, the Treasury has transferred over 570 billion reais ($214 billion) of taxpayer money into BNDES to fund factories, farms and services firms.

Economists partly blame President Dilma Rousseff’s financial support of BNDES for an increase in public debt and inflation, and the reduced effectiveness of monetary policy in recent years.

In another major policy decision, the country’s main economic policymaking body, known as CMN, raised for the first time in almost two years the interest rate at which BNDES pegs its loans. The CMN increased the so-called TJLP rate to 5.5 per cent from a record low 5 per cent.

The suspension of transfers to BNDES and the TJLP increase are the latest policy changes Rousseff has announced since winning re-election in October. The 67-year-old president pledged more budget austerity to regain investor confidence ahead of her second, four-year term, which starts in January.

Both steps will help incoming Finance Minister Joaquim Levy cut rampant spending, wrestle with a decline in tax collections and improve the reliability of public finances in Latin America’s largest economy. Rousseff’s expansionist policies helped drive debt to 63 per cent of gross domestic product from 53 per cent in 2011, her first year in office.

The CMN had kept the TJLP rate unchanged since January 2013 to help direct more subsidized credit into Brazil’s stagnant economy. The rate gap between the yield of government debt issued to help fund BNDES and what the it pays for that financial support is currently 6.75 per cent, costing taxpayers about 35 billion reais a year.

[loganair] 20/12/2014 15:00

The most important thing to understand about this week is that it’s not just about Russia – or even just about the oil price crash.

The reality is that there’s a massive shift going on in the financial system right now, and it threatens to affect markets right across the board. Indeed, you can make an argument that the oil crash is a symptom rather than a cause of this shift.

The US dollar is getting stronger as the Federal Reserve turns off the monetary taps. That is incredibly disruptive for anyone who has been relying on the dollar remaining cheap. Unfortunately, a lot of people – emerging markets in particular, but not only them – had been betting on the dollar going one way.

That’s no longer the case, and the fall-out could be very messy indeed.

[loganair] 16/12/2014 22:30

EMERGING MARKETS-Brazil markets melt as oil, rouble spook investors.

Brazilian financial markets have been falling sharply due to falling oil prices and a plunge in the Russian rouble have driven investors toward safer assets.

[loganair] 15/12/2014 21:05

James McKeigue:

I’ve never been a big fan of investing in Brazil. Ever since I wrote my first piece on Latin America for MoneyWeek, back in August 2012, I have felt that the region’s biggest economy hasn’t been the right place for small private investors like us.

Instead, I’ve been looking for investments in some of the smaller, more dynamic Latin American markets – especially those that make up the Pacific Alliance. And, so far at least, I feel that stance has been broadly justified.

Since I wrote that first article, Brazil’s main index is down by about 20%. Of course, that’s not to say that there aren’t good investments there. Brazil’s a big place, and I’m sure that lots of people far smarter than me have made a tidy profit there over the last few years. But, on balance, I felt there were more exciting places for us to invest.

And if I was generally sceptical about Brazil I was scathing about its two economic champions – iron ore producer Vale and oil company Petrobras.

Since I've said to steer clear of these two, they’ve both lost around two-thirds of their market value. Sometimes the stocks you don’t invest in are more important that the ones you do, so I think it’s worth taking a look at just what went wrong with Brazil’s corporate giants.

I love Brazil, but...

Let’s get one thing straight – I haven’t got anything against Brazil.

Back in 2008, I was sent to the country’s oil and gas capital, Rio de Janeiro, to write a report on the country’s massive offshore oil discoveries. Young, free and single in Rio de Janeiro – it was one of the best three months of my life. Brazil is a beautiful place, filled with friendly people, it’s long been a cultural powerhouse and over the last ten years it’s started to become an economic force too.

Yet, like any country, Brazil has its problems. Crime, inequality and corruption all hold Brazil back. Indeed the last problem has proved a real bugbear for Petrobas – more on that later.

But the common denominator in the downfall of Vale and Petrobras has been state interference.

The Brazilian government has a majority stake in both companies. This corrupts the decision-making process so that it no longer serves what’s best for shareholders, but instead suits the government. That might work for a while if the interests of both are aligned. But over time they are bound to diverge.

Of course, back in 2012, this ownership structure didn’t seem to be a problem. Both firms were riding the commodities boom and seemed to be doing well. Yet even back then, there were warning signs.

In 2011, Vale’s successful CEO was replaced, apparently because he was resisting government hints that the iron ore miner should expand into the less profitable, but more labour-intensive, steelmaking industry.

Meanwhile, Petrobras was also making a slew of decisions – such as selling its oil at a loss to the domestic market – that showed it was serving Brazil, not its shareholders.

That’s why, back in December 2012 I warned investors off the companies. “The common theme here is that both were founded as state champions and though they’ve partially listed they still receive a lot of political ‘directionR17;. And while I think they’re great engines of growth for the Brazilian economy, I don’t think you should be investing in Latin America through stocks like these.”

When disaster struck...

Of course, state interference isn’t the only problem affecting these firms. A huge slide in commodity prices has also played its part. But the state emphasis means that these firms have been less flexible in reacting to the new scenario, especially when it comes to cutting loss-making businesses or reducing labour costs.

At the moment, Dilma Rousseff’s one saving economic grace – and it’s not one that should be taken lightly – is that Brazilian unemployment is near record lows. The last thing she needs is for some of the country’s biggest employers to start laying-off workers.

The other option is to pull back on some of the crazy capital investment. Yet, as I noted above, these firms also drive national growth.

LCA, a São Paulo-based market analysis agency, estimates that a 10% cut in Petrobras’ capital expenditure would knock 0.5% off Brazil’s GDP. Given that growth is only scheduled to come in at 0.5% this year, that’s something that Rousseff can ill afford. And that’s why these firms have done even worse than their private competitors. For example, in the world of giant miners, Vale has underperformed rivals such as BHP Billiton and Rio Tinto by 40% over the past three years.

And as for Petrobras, it’s done even worse.

Interfering in a large company to boost the national interest may not be great for minority shareholders, but it’s understandable. As I said back in 2012, Petrobras has done a lot of amazing things for Brazil.

Back in the 1950s it doggedly searched for oil, when the received private-sector wisdom was that there was none to be found. It also drives research and development in the country.I visited its CENPES oil investigation facility back in 2008 and was impressed to discover a lair of white-coated scientists and futuristic inventions. Latin America lags the West and Asia in R&D spending, so Petrobras’ efforts are an important contribution.

But the problem is that state interference in Petrobras hasn’t just been a bid to boost Brazil. Now a huge corruption investigation is revealing that politicians also exploited their influence in the company to make a slew of corrupt deals.It’s alleged that overpaying for contracts and assets created scope for billions of pounds worth of bribes to be handed out to key figures in the public and private sector. So far 12 senators, 49 federal deputies and at least one governor have been accused of being involved in the £2.5bn scandal though fresh details keep emerging.
When to buy Petrobas

Of course, corruption isn’t restricted to firms with state interference. But by blurring the lines between those who set the rules and those who operate within them, it probably encourages it.

The big question for us now is: when should we invest in Petrobras? I must admit the firm’s massive problems and struggling share price make it attractive for a contrarian investor – especially when you consider the massive assets it still has at its disposal.

Analysts at JP Morgan believe it’s too early to jump back on board yet. They advise waiting until at least 31 January 2015, when Petrobras is finally due to release its delayed third-quarter report. It’s sound advice, and I’m going to be keeping an eye on both it and Vale and will let you know when I’m ready to change my opinion on Brazil’s corporate giants.

[loganair] 05/12/2014 20:42

Brazil Reduces Economic Growth Forecast for 2015:

With the 0.8 percent increase in the country’s GDP, the primary surplus for next year should total R$ 66.3 billion.

SÃO PAULO, BRAZIL – Brazil’s Planning Ministry has reduced its growth forecast (GDP) for the country’s economy in 2015 from 2 percent to 0.8 percent. The reduction in estimate comes only weeks after the government had announced it had revised its GDP growth estimate for next year from 3 percent to 2 percent.

Brazil is battling to rein in rising prices outstripping an official central target of 4.5 and which has now spent four months just above the maximum ceiling of 6.5 percent.

The central bank on Wednesday raised its key interest rate by 50 basis points to 11.75 percent in an attempt to keep further price rises in check.

[loganair] 28/10/2014 15:56

Bengt Saelensminde:

Tick tock, tick tock… the countdown to the dollar losing its reserve status is really moving forward with pace now.

I’ve written before about the Shanghai Co-operation Organisation – the eastern bloc I think will come to dominate the faltering eurozone. It includes Russia, China, Iran and plenty of smaller nations that are bullied by US-led sanctions and dollar asset confiscation. They’re saying to the USA: “We don’t need your currency system!”

And now the counter-attack gets fiercer still…

That’s because there’s a group of nations that overtakes even the SCO’s power. Brazil, Russia, India, China and South Africa (the ‘BRICS’) just announced the first stage of their own new currency system.

These guys are fed up with the US and Western-centric banking and foreign policy, and now they’re doing something about it. They’re setting up the institutions you need if you’re going to run the world’s reserve currency yourself, like a mini-IMF and development bank.

Today let’s look at how we got to this point… and more importantly, what you and I can do to protect our investments when the domination of the dollar does finally come to an end.

The emerging markets want their dues

After the second world war, the US was the only major superpower, and certainly the only country with any money.

A new financial world order was created, and alongside it came institutions like the World Bank, the International Monetary Fund (IMF) and the Bretton Woods agreement. This confirmed the US dollar as the preeminent currency for cross-border transaction.

But since then, the US has lost a lot of its clout – and emerging markets have become more and more powerful!

Today around 20% of global trade comes from the emerging markets, a percentage that could be much higher if they were allowed more control over the global monetary system.

And yet they hold only 11% of the votes at the IMF’s table…

For years the IMF has promised change. In 2010 they promised a series of reforms that would give the southern and eastern nations a greater share of the pie. Alas, nothing has happened, and given Russia’s recent branding as pariah, there’s little chance of meaningful change happening.

So how have the emerging nations responded?

They’re cutting out the middleman

Well, they’ve given a great big two-finger salute to the IMF.

In July the BRICs signed an agreement to set up both a New Development Bank – capitalised at $50bn – as well as a Contingent Reserve Agreement (CRA) to bail out members in trouble, potentially stocked with $100bn.

The development bank will make loans to enable the emerging markets to establish key infrastructure projects – things that will bring electricity, transport, telecoms and water projects on line.

The contingency fund will help ward off speculators from trashing local currencies and help them help themselves during times of financial stress.

And to top it off, they’re setting up a system that will allow them to hold their massive reserve savings out of reach of the powerful Western nations and their hugely conflicted interests.

These commitments are formed on bilateral currency swaps that specifically avoid the US dollar. And that’s the point – while they all use the dollar as a mechanism for valuing their own currency, they no longer actually need the dollar to effect transactions.

And while this might sound like an insignificant circumvention, believe me, this new development has serious global significance. This is no idle threat.

You and I need to realign our interests… but how?

Three ways to protect yourself

First – make sure you’ve got exposure to the emerging markets.

It’s true that in the past, these markets have been highly volatile. But, of course, that’s because the West has made them that way. During times of stress, the Western banking system has hung them out to dry. Right now, these guys are saying “No more!” and I suspect that the emerging markets will prove even more defiant going forwards.

Second, make sure you’re well stocked up on resources.

Oil, gas and key minerals will be in increasing demand. The southern and eastern nations are pushing ahead with infrastructure projects, and a plan to take a seat at the high table. All of this requires resources. To my mind, we’re still in the middle of a global commodities bull market… it’s just that there’s been bit of a slowdown. Take a twenty-year view on commodity stocks, and I don’t think you’ll go far wrong.

Third, keep an eye on precious metals.

The Bretton Woods system, established after the second world war, was based on a dollar/gold relationship. Basically, a nation’s trade would be transacted in dollars and settled in gold.

But that relationship was dropped in 1971 – and now the emerging world is starting to impose its own rules. It looks increasingly like a new Bretton Woods… call it a Shanghai Woods.

So what? Well, these nations might choose to go back to a gold (or even silver!) based system. That’s why these metals are smart bets – at least until any new system becomes clear.

The new world bank is to be established in Shanghai. Russia will hold the first Chairmanship. India will be the first president – and Brazil will chair the board of directors. A regional office will be established in South Africa – yes, Africa is very much involved in the new regime.

I think that this emerging world bank will dwarf that of the current system in due course. These are the guys that are building a savings resource… these are the guys that are feeding the world economy’s consumer appetite. While Western nations bloat on the welfare/warfare state, the south and east make hay.

This is a game-changer. Hold your hands over your ears if you want, but I, for one, am taking this very seriously.

[loganair] 18/10/2014 19:39

Long-term foreign investors are growing more optimistic about Brazil no matter who wins this month's presidential election but they say an opposition victory could unleash a flood of new money.

Investors are betting that either Neves will win the runoff on Oct. 26 or that Rousseff, chided by a very narrow margin of victory, will adopt more market-friendly policies in a second term.

"Either things are significantly better, or a little bit better," said Jorge Mariscal, chief investment officer for emerging markets at UBS Wealth Management, which oversees about $1 trillion in investments.

After hitting a five-year low in mid-March, the benchmark Bovespa stock index has since gained more than 20 percent and is up over 5 percent in 2014 - by far the best performer among key Latin American bourses.

Global funds that invest in Brazilian equities also began to attract net inflows in April. Since then, they have received over $4 billion, more than enough to offset the $3.5 billion in net redemptions recorded during the first quarter of the year, according to data from EFPR Global.

That number could shoot much higher if Neves wins.

"After we get the final results, then we would definitely look to increase Brazil in our portfolio," said Ben Rozin, who helps manage more than $53 billion at Rochester, New York-based Manning & Napier, Inc.

Echoing other long-term investors, Rozin said it "pays to wait and see how things play out" but noted that a Neves victory would sharply improve the value of state-run companies that have suffered under Rousseff's heavy hand.

"Even knowing that the market would be more expensive then, to us the economic and the earnings trajectory would change significantly for the better," he said.

Manning & Napier had been tip-toeing back into the Brazilian market since the second quarter of 2013. The firm's World Opportunities Series fund and its International Series fund both had a little over 6 percent of their holdings in Brazilian shares by the end of August, up from about 2.4 percent and 4 percent, respectively, at the end of March, 2013.

Pragmatic Rousseff?

Since August, when the death of presidential candidate Eduardo Campos in a plane crash upended the election race, investing in Brazil's stock market has been akin to riding a bucking bull, with sharp drops and jumps dictated by voter opinion polls.

Though traders expect the market to sell off heavily in the short term if Rousseff is re-elected, long-term investors aren't preparing to run for the hills. The odds of a more open-minded Rousseff administration, they argue, increased after the strong showing of opposition parties in the election's first round.

"This could force some change on the part of the Rousseff administration towards being more pragmatic on things like prices, fiscal policy, changes in the cabinet," said UBS' Mariscal. "She will be more forced to address the key failures of the economic model that she has been following."

While these investors do not expect a second Rousseff government to foster a strong economic recovery, they believe she could implement some badly-needed policy adjustments to rein in inflation and win back some credibility among investors and credit ratings agencies.

Even those who are unconvinced that the president would change tack in a second term say Brazil will continue to offer interesting growth opportunities regardless.

"I wouldn't expect a real substantive change in how she is running the economy," said Marco Spinar, an associate portfolio manager on Neuberger Berman's $5.5 billion Global Emerging Market Fund, which has about 10 percent of its portfolio invested in Brazil.

Still, Spinar sees opportunities in sectors that have underperformed recently, such as capital goods manufacturers and businesses geared toward investment spending.

"Brazil obviously isn't going to fall apart if Dilma wins," he said.

[loganair] 07/10/2014 12:44

Brazil looks a great investment – and a half-decent government would make it even better:

The Brazilian stock market jumped by 5% yesterday.

Why the good cheer? Because investors were pleasantly surprised by the election result.

This was the first-round vote for Brazil's presidency. We now know that the final face-off will be between the left-wing incumbent, Dilma Rousseff, and the centre-right candidate, Aecio Neves.

The surprise was that most observers had expected Rousseff to be up against a different candidate – the centrist Marina Silva.

There's now a chance that Brazil could soon have a pro-business president rather than the somewhat inept Rousseff – hence the market rally.

So can Neves win? And whatever happens, is now a good time to invest in Brazil?

Brazil's stockmarket is still well below its 2010 peak

Even after yesterday's rise, Brazil's main stock market index, the Bovespa, is still more than 20% below its peak in 2010. There are three main reasons for that.

Firstly, there's the expectation of higher interest rates in the US. Some American investors have already brought money 'home' from emerging markets such as Brazil in anticipation of rates rising. In short, if you can get a decent return on your money in the US, why take the risk of investing in emerging markets?

Secondly, concerns about China's financial stability have hit Brazil, as Brazil is a big exporter to Asia.

And finally, the most important reason – Brazil just hasn't been very well governed since Rousseff took power in 2011. Rousseff tried to stimulate growth by pumping up government spending and raising the minimum wage. She also forced state-run banks to lend more.

As a result, inflation took off. Rather than reverse course, she imposed price controls, which inevitably make things worse by creating shortages. Inflation now stands at 6.5%, while GDP shrunk in both 2012 and 2013.

It's no surprise that civil unrest erupted in Brazil last year, as middle-class Brazilians protested against falling living standards. They were also angry about widespread corruption – another issue that has held the Brazilian economy back. On top of all that, Brazil's infrastructure, both for transport and electricity, is under-developed.

So what's the good news?

However, there are some good reasons to consider investing in Brazil. And these apply regardless of who wins the second round of the election.

For starters, Brazil has been a democracy for almost 30 years now and that doesn't look likely to change. And just like India, demographics look good. The average age for the population is 29, much younger than the US, where the average age is 39.

Brazil also has significant oil reserves, along with masses of agricultural land. As the global population continues to soar, the value of this land must surely rise.

Brazil also looks pretty attractive on valuation grounds. The stock market currently trades on a price/earnings ratio of 17, which isn't bad, and the dividend yield is over 4%, which I think is fantastic for a market with lots of long-term growth potential.

And if you look at Brazil's Cape (cyclically adjusted price earnings), Brazil looks cheap with a rating of just ten, according to Mebane Faber. (Faber calculated this Cape figure back in July, but the stock market was then at roughly the same level as now, so his Cape figure for Brazil shouldn't be too far off now.)

Then of course, there's the possibility that Neves might win the second round. If he does win that round, I'm in little doubt that the stock market will rise further (look at what happened in India when that country elected a pro-business president).

Let's be clear, Neves was a long way behind Rousseff in Sunday's poll. Rousseff got 42% of the vote while Neves got 34%. However, some observers think Neves will be able to win over the majority of the centrist Silva's supporters, who comprised 21% of voters.

For example, Tony Volpon from Nomura told Fast FT that the "result suggests Neves did well to build momentum, especially on a very strong debate performance last Thursday. To win the election he will need to convert around 70% of those who voted for Marina Silva – which we believe is possible.

"Momentum aside, Neves has so far run an effective campaign and has resources and a powerful party machine to support his final push. Further, Silva positioned herself very strongly against Rousseff during the campaign, which, in our view, means her supporters are still likely to vote against the incumbent. This is made all the more likely as we believe Silva will formally endorse Neves."

How to invest in Brazil

My hunch is that Neves will just shade it. But I wouldn't base your investment decision on this. There's too much uncertainty for that. So this isn't a short-term speculative punt. If Rousseff wins, markets could well express their disappointment.

Even so, I think Brazil will prove to be a decent investment for the long term – the population and the agricultural land will see to that. So if you do decide to invest for the long term, the cheapest option is probably the iShares MSCI Brazil Fund (LSE: IBZL) which has a total expense ratio (TER) of 0.74% a year.

However, I'm not convinced that passive exchange-traded funds are the best way to go with a relatively immature stock market such as Brazil's, so I'm more attracted to the actively-managed JP Morgan Brazil investment trust (LSE: JPB), which has a TER of 1.47% and trades on an 8% discount.

[yf23_1] 06/10/2014 13:54

Ok, I think this explains it. Rousseff is bad for the market but next round of elections could see her lose if Silva backs 2nd cadidte Neves.


0931 GMT [Dow Jones]–Markets are likely to cheer the surprise emergence of Aecio Neves as the challenger that proceeds to the second round against the incumbent, Dilma Rousseff. “Ms. Rousseff remains the favourite at this stage but the momentum is now with Mr. Neves – and from the perspective of financial markets, he offers the best hope of any of the leading candidates of pushing through the reforms needed to revive Brazil’s faltering economy,” say analysts at Capital Economics. The big question now: will Marina Silva, the third-placed candidate, throw her weight behind either Rousseff or Neves?

[yf23_1] 06/10/2014 13:42

All Brazil ETFs up markedly today (some 10%), so whats driving this ?

[loganair] 26/3/2014 10:07

Brazil has initiated removing the US dollar from internal trade within BRICS.

[loganair] 10/3/2014 15:53

Matthew Partridge - It's been a grim few years for those investing in Latin America.

Many people are blaming the pain in emerging markets largely on the Federal Reserve's plans to cut back on quantitative easing (the 'taper'). But the region's woes go back way further than that.

In fact, the MSCI Latin American Emerging Market Index peaked at the end of 2010, well before the taper was even a twinkle in Ben Bernanke's eyes.

The real problem has been fear over the knock-on impact from a slowing Chinese economy. China is trying to create a more consumer-led economy. That implies lower demand for agricultural imports and other raw materials. That's bad news for most Latin American nations, which still depend heavily on selling their resources overseas.

Political risk in Latin America is less extreme than it was:

The country grabbing all the headlines in Latin America just now is of course Venezuela, where the regime is still clashing with protestors. I have written articles on the situation, and it's fair to say that it's a pretty grim story.

But if you look at the region as whole the situation is much more positive. Given Latin America's long history of dictatorships, it's no surprise that political risk is still a drag on investor confidence. Even in those countries where free and fair elections have taken place, there is always the risk that the loser might not accept the result and try and sabotage the process.

The two most prominent recent examples were the 2002 Bolivian election and the 2006 Mexican election. In the former case, armed supporters of the loser shut down the country a year later, forcibly removing the president. In Mexico, similar protests eventually petered out, but still succeeded in disrupting traffic to and from the capital for months after the election.

With this in mind, it's no surprise that this year's round of elections in the region (Brazil, Colombia and Uruguay) might have investors worried. But they shouldn't be. Experts on all sides of the political divide expect the outcomes to be respected.

What's more, William Landers of BlacRock Latin American Investment Trust expects that, assuming Dilma Roussef (in Brazil) and Juan Manuel Santos (in Colombia) are re-elected, they will take much more investor-friendly positions, in a similar way to Mexico.

But with the region as a whole losing money for investors for two out of the last three years, it's starting to look like a good contrarian bet. Here's how to play it...

The benefits of a young and growing population:

There's another, longer-term reason to be optimistic. One reason why populist politicians – from Peron in the 1950s to Chavez in the 2000s - have done so well throughout Latin America's history, is that there has always been a large gap between the rich and poor.

Of course, populist policies, such as state control and high trade barriers, have just made things worse, by stifling competition and strengthening the hand of a few large firms. Crime and corruption also ensured that the benefits from the boom period of the 1980s were creamed off.

But now, thanks partly to economic reform, wealth seems to be trickling down. According to a 2013 World Bank Report, Latin America's middle class grew by 50% during the last decade. The proportion of those living in poverty meanwhile has fallen from 44% in 2003 to 31% in 2009.

Not only is the middle class growing, it's also young, unlike the ageing populations in Europe and Southeast Asia. That makes for strong consumer demand. Retail sales have nearly doubled in real terms (in other words, adjusting for inflation) over the past decade in Brazil, Chile and Colombia.

The big winner has been the domestic banking sector, which has grown on the back of demand for mortgages and car loans. While credit growth can be a double-edged sword, most banks in the region are run on traditional lines, avoiding the financial engineering that led to the subprime crisis.

An easy way to buy into Latin America:

In short, while Latin America has been hurt by cyclical, short-term moves in the economy (falling demand for commodities), the longer-term story is bullish. Governance is improving across the region, and the young population means consumer demand and growth will remain high and rising.

That makes Latin America look cheap right now. The US market trades at a price/earnings (p/e) ratio of 14.3 times 2015 earnings, and a dividend yield of 2%. The MSCI Latin America Index on the other hand, has a forward p/e ratio of only 10.6 times, and a yield of 3.3%.

Investing directly in Latin America can be complicated for the retail investor. You'll find some individual companies listed in the US, but obviously that leaves you open to specific stock and country risk.

[shavian] 20/9/2013 08:37

Ever feel like a lone voice in the wilderness, Loganair? Thanks for your informative posts.

Remarkable similarity between the share price behaviour of JPB and NII. Both formed an inverted mini-head and shoulders in the past month. The surprise Bernanke announcement on QE may mean stimulus will be with us much longer than expected. Solid support for EM's indicated.

[loganair] 20/12/2012 15:43

Brazil Central Bank cuts GDP growth forecast.

Brazil's Central Bank on Thursday cut its GDP growth forecast for 2012 from 1.6 percent to 1 per cent, confirming a marked slowdown in Latin America's biggest economy.

In September, the Bank had already revised its forecast downward from 2.5 percent to 1.6 percent.

Thursday, the bank also revised its inflation estimate for 2012 to 5.7 percent, up from 5.2 percent. The new projection is well above the official target of 4.5 percent.

Market analysts have been predicting 1.5 percent GDP growth for Brazil this year, a projection similar to one by the International Monetary Fund in October.

The IMF also expects Brazil to fare worse than its partners in the BRICS bloc of emerging powers, predicting 7.8 percent growth for China, 4.9 percent for India, 3.7 percent for Russia and 2.6 percent for South Africa.

Brazil's economy grew just 0.6 percent in the third quarter of 2012 compared with the previous three months, signaling a weaker than anticipated recovery, the Brazilian statistics office said late last month.

The economy lost steam last year due to the global slowdown, with GDP growth at 2.7 percent, down from a sizzling 7.5 percent in 2010.

[loganair] 21/8/2012 09:47

Brazilian companies from JBS SA to Banco do Brasil are planning to buy back 2.4 billion reais ($1.2 billion) of stock, the most among the world's four largest emerging economies, after shares faltered and earnings disappointed investors.

Of the 430 companies that trade in Sao Paulo, at least 11 have announced repurchases since the end of the second quarter, compared with three in India, one in Russia and none in China. A year earlier, 10 Brazilian companies bought back shares in the period.

Thirty-six companies out of the 58 listed on the Bovespa index reported earnings that missed forecasts in the second quarter, while sales trailed estimates by the most since 2009. The index has plunged 14 percent from its 2012 intraday high on March 14.

"The perception is that the stocks are cheap," Marcelo Mello, who helps manage 22.8 billion reais at SulAmerica Investimentos, said in a telephone interview from Sao Paulo. "Valuations have fairly recovered, but they are still far from their peak."

Companies on the Bovespa are trading at 11.7 times analysts' earnings estimates for the next year, down from a peak of 17.4 times in December 2009. Companies on Russia's Micex index trade at 5.4 times estimated earnings, compared with 9.5 in China and 13.9 in India.

[loganair] 17/8/2012 15:18

Brazil to develop 10,000 km of new railway - 17 August 2012

BRAZIL: The federal government launched a logistics investment plan on August 15 that will see R$91bn spent on 12 new railway projects totalling 10,000 km over the next 30 years.

As well as reviving rail freight, the plan aims to 'break the monopoly' on the provision of rail freight services and cut rates.

Under a PPP model, the government will award concession contracts for the construction and operation of the new lines. Capacity on these new routes will be purchased by federal railway construction agency Valec, which will then sell it on to shippers moving their consignments, independent freight operators and freight concessionaires.

Projects will be taken forward by a new planning and logistics agency, EPL. The government says that funding will be made available on 'favourable' terms, at an interest rate up to 1% over the long-term rate set by federal development bank BNDES (5·5% for the quarter from July to September 2012) and with repayment over 25 years.

According to President Dilma Rousseff, the programme would finally provide Brazil with the transport infrastructure that its size required. The federal government's aim was to work with project concessionaires 'to obtain the best that private enterprise can offer in terms of efficiency, and the best that the state can and should offer in the planning and management of public resources', she said.

Following studies and public hearings, tenders for the first group of six projects totalling 2,600 km are to be published in March 2013, with contract signature scheduled for May to July of that year. The second group comprising 7,400 km would follow in May 2013, with contracts signed between July and September.

[loganair] 16/8/2012 16:46

Building Brazil: what the $66bn stimulus package means:

What has happened?

President Dilma Rousseff has announced a $66 billion package to stimulate the economy through infrastructure developments on highways, airports, ports and railways.

Designed to improve the transport system in order to aid trade and commuting, the money will also help strengthen its infrastructure ahead of the 2014 FIFA World Cup and 2016 Olympics Games in Rio.

Why has she announced this now?

Growth is a major factor. From obtaining 7.5% GDP growth in 2010, current projections for this year sit at 2% and Rousseff has seemingly taken a proactive step to foster investment in the country.

The need for improvement in the Brazilian infrastructure cannot be dismissed, with fund managers such as Franklin Templeton's Marco Freire and Ashmore's Jerome Booth both previously stating the need for $1 trillion worth of foreign and private investment in the country.

Will it deliver?

Brazilian equity investor Michael Konstantinov, who runs five Brazil and BRIC equities on behalf of Allianz including the Allianz Brazil fund, said infrastructure developments in the Latin American powerhouse are very much a case of seeing is believing.

'The announcement is one thing and the implementation is another,' he said. 'We don't know whether these plans will actually happen. It looks like they are asking for much lower internal rates of return, so these projects could be a bit less profitable.'

'On the other hand, they have got quite strong support from the BNDES – the Brazilian Development Bank – which will offer funding at below market rates.'

Does this affect what the Brazilian central bank is doing?

In short, no. Konstantinov said the majority of projects outlined by Rousseff will be set on a five-to-six year time horizon, while the Brazilian central bank is working on a much more near-term basis.

[loganair] 16/8/2012 16:41

Brazil Pumps $66B Into Road, Rail To Boost Economy.

Brazil will invest $66 billion in its crumbling road and rail infrastructure in a bid to fix transport bottlenecks and drive the economy, it was reported today.

President Dilma Rousseff said the investment will include the laying of 6,200 miles of train tracks and building or widening 4,660 miles of federal highways, the Associated Press said. Rousseff added that announcements about similar schemes for airports, waterways and ports would follow.

"We're starting an initial stage from which Brazil will emerge richer and stronger. ... Brazil will finally have an infrastructure that's compatible with its size," Rousseff said.

Brazil has seen strong gains in its economy over the past decade tail off in the past year, with economists predicting a GDP growth rate of around 1.8 percent for 2012.

The country's second-rate transport infrastructure has long been cited by economists as a constraint on further growth, as the South American giant struggles to get its abundant natural resources to hungry global markets.

A recent World Economic Forum report ranked Brazil 104 out of 142 nations surveyed for the quality of their transport networks.

[loganair] 30/7/2012 11:10

The Board is pleased to recommend a dividend of 1.35p per Ordinary share, up from 0.5p last year. Subject to shareholders' approval at the forthcoming Annual General Meeting on 11th September 2012, the dividend will be payable on 14th September 2012 to shareholders on the register at 10th August 2012.

[loganair] 30/7/2012 11:05

Is Brazil A Contrarian Buy?

There's more to Brazil than beach volleyball.

Brazil is a wonderful country. It has the beaches of Copacabana. It has the statue of Christ the Redeemer. It is perhaps the most cosmopolitan country on earth, and it also has a rather good football team. But what about investors? Is it worth buying into?

A story that has turned sour:

In recent months, the emerging markets story seems to have turned rather sour. All the BRIC nations have suffered recently.

The Brazilian market in particular has fallen sharply: it is now down 23% from its 2012 high, and it is at levels last seen during the eurozone crises of last year.

What's more, the Brazilian real has also been falling, making the country's shares even cheaper. Over the past year it has fallen over 20% against the pound.

Isn't it amazing how quickly things change? Not so long ago people couldn't wait to invest in the Latin American country. Now everyone seems to be steering clear of it.

The bear case:

So what is the bear case? Well, in recent months commodity prices -- on which so much of the Brazilian economy has been dependent -- have been falling. It is more than coincidence that the country's shares have been falling at the same time.

What's more, Brazil's growth rate has been slowing. After an impressive decade, the nation's growth was less than 3% in 2011, and is likely to be scarcely more than 3% in 2012.

The past decade saw a consumer boom that was stoked by credit expansion, but now it is faltering. Tens of millions of Brazilians were lifted out of poverty in the past 10 years, but now they have built up too much debt, and are cutting back.

In an effort to counter this slowdown, the government has been cutting taxes and lowering borrowing costs, but to little avail. A poor grain harvest and weak export growth also contributed to the slowdown.

The bull case:

Despite all the negatives, I still think there is a strong bull case. Brazil still has compelling demographics, with a young and growing population. While the consumer boom may have become slightly frothy, there is still a burgeoning middle class.

What's more, I suspect that this is only a temporary lull in commodity prices. Eventually, I expect that they will resume their upward trend, and when they do so Brazil will stand to benefit. And as the world economy recovers, exports will also recover.

Plus, the World Cup and the Olympics will soon be arriving in Brazil. This will create a buzz in the country, and a feeling that its time really has come.

Finally, you could argue that this is the time of maximum pessimism -- the time when contrarians start to wonder if it is time to buy.

The bottom line:

So am I a bull or a bear? Well, I find myself somewhere near the middle. I suspect that the days of stunning growth in Brazil, both for the stock market and the currency, may be over. The country is now in a consolidation phase. But I still think there are opportunities aplenty, and that there is a strong likelihood that the country's shares will bounce back.

So I would say that Brazil is still worth a close look for investors, alongside other Latin American countries that are starting to emerge, such as Mexico and Argentina. But bide your time -- the currency may get cheaper still.

If you think that Brazil is worth a punt, there are several routes in. You can purchase individual shares such as Petrobras and Vale -- but my favoured route is through an investment trust.

Two of my favourites are BlackRock Latin American (LSE: BRLA), which is currently trading at a whopping 10% discount to net asset value (NAV), and JP Morgan Brazil (LSE: JPB), which is trading at a discount to NAV of nearly 6%.

[loganair] 14/6/2012 10:46

Brazil, home to some of the highest interest rates in emerging markets, is fast moving to a lower-­rate climate, but the government's aggressiveness in forcing the pace runs the risk of backfiring.

Banco Central do Brazil cut its policy rate, the Selic, by 50 basis points, to 8.5 percent, late last month. With the move the central bank has slashed its key short-term rate by 400 basis points since August.

Brazilian rates have fallen as softer Chinese demand for commodities and the impact of a strong real have slowed the economy sharply. Most economists believe the country will struggle to achieve 3 percent growth this year, below the government's 4.5 percent target.

Having committed to fiscal restraint, President Dilma Rousseff sees lower rates as one of the best options for stimulating the economy. In a televised May Day speech, she bashed banks for keeping loan rates high even as the central bank was easing. According to the central bank, average lending rates stood at 35.3 percent in April, a level that Rousseff called "unacceptable."

The jawboning attempt, at a time when the government was pursuing a multi­billion-­dollar tax claim against mining giant Vale and Argentina had just seized oil company YPF, raised fears of wider intervention in the economy. "Brazil couldn't have picked a worse time to do something like this," ­William Landers, senior portfolio manager of BlackRock's Latin American funds, told an investors' conference in Rio de Janeiro late last month.

Government pressure could be counterproductive if lower rates spark a rise in inflation, currently just over 5 percent, said Jonathan Weinberger, head of Americas debt capital markets at Société Générale.

Most big investors remain confident about Brazil despite the slower-­growth outlook and the rate flap. "We have rules. We respect contracts. We have a clear monetary policy targeting inflation," said Marco Geovanne, a director of the $150 billion Banco do Brasil pension fund Previ. He sees the Selic falling to 8 percent.

Paul Griffiths, head of fixed income at Aberdeen Asset Management, said the U.K. firm is looking to add staff in Brazil as part of an emerging-­markets buildup. "We see Brazil as a key investment," he said.

[loganair] 10/5/2012 13:53

Brazil, not China, is the star investment performer of the past decade. But its larger Asian counterpart can take some of the credit for the average return of 393% from Latin America and Brazil funds over the past 10 years (see chart below).

After all, fast-growing China's appetite for commodities has been described as the 'game changer' for Brazil, helping lift the country from a position of economic weakness and poverty.

Then, the 'Lula model' of growth, presided over by Luiz Inacio Lula Da Silva for eight years until he left the presidency in 2010, saw the country enjoy growth and reforms that have helped it become the sixth largest economy in the world.

Brazil and Latin America equity funds have been the best performers over 10 and five years, but have lagged over a year.

Brazil now benefits from relatively low unemployment, an end to the rampant inflation that had subdued economic growth in previous decades, and continued growth coming from a rising middle class.

Economic growth over the five years to 2010 averaged 4.5%. But last year, at a much slower 2.7%, economic growth was closer to the 2.5% average seen in the 1990s.

Much of the blame for the recent economic slowdown has been attributed to problems arising elsewhere around the globe, particularly the eurozone, which has seen money fly into Brazil to take advantage of the double-digit interest rates put in place to tame inflation. Brazilian industrialists have subsequently blamed a strengthened real for their woes.

Economically, major reforms are needed – not just cuts to the country's sky-high interest rate.

Meanwhile, the stock market has been at the whim of global investor appetite for risk. The Bovespa rose in the first months of this year when sentiment was more upbeat, but as eurozone fears have crept back emerging markets such as Brazil have again come under pressure. Investors are also deterred in the short term by uncertainty about how far the Brazilian central bank will cut interest rates, as it balances the economic slowdown with inflationary pressures.

For now, many investors are opting to sit tight, with fund flows data showing that they are holding back from putting money in emerging market equity funds, including Brazil. Until there is more certainty over Europe's fate, Brazil and other Latin American markets will remain liable to sharp swings.