How Argentina’s Debt Crisis and Brazil’s Civil Unrest are Eclipsing Latin America Opportunities

August 21, 2014

Tim Pennington – International Business Times, 8/21/2014

News stories emanating from Latin America rarely frame the region’s economy in a positive light.

This summer’s excellent World Cup – while not eclipsed on the field – was against a backdrop of strikes and civil unrest in Brazil’s major cities. Similarly, Argentina’s President Cristina Kirchner and her government were forced to default on their debts for a second time in thirteen years.

The negative image that these high-profile stories create does not do justice to the economic transformation taking place in Latin America or the investment opportunities the region now offers to business.

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Petrobras Would Make The Most Of Brazil’s Escalating Natural Gas Demand

August 21, 2014

Khuldune Shahid – Seeking Alpha, 8/21/2014

Petroleo Brasileiro Petrobras (NYSE:PBR), or Petrobras, announced on Tuesday that it had extended its agreement with Bolivian state-owned firm YPFB, which would continue supply natural gas to a thermoelectric power plant in Brazil till December 31, 2016 as a part of the Gas Supply Agreement (GSA). The deal has also provided clarification with regards to the various interpretations of the GSA via inter-party compensations.

The agreement between PBR and YPFB is of advantage for both the concerned parties, because not only does it offer short-term incentives, the deal also provides the Brazilian company the opportunity to enhance production and exploration of Bolivian natural gas. The deal ensures that any natural gas that PBR would extricate would be liable for preferable allocation to Brazil.

The deal’s positive impact on PBR’s Q3 numbers isn’t going to be tangible, with the Brazilian firm set for a $268 million loss. Even so, the calendar year’s result should witness positivity for PBR with an expected $128 million profit.

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Brazil’s Central Bank Takes Action As Economic Outlook Worsens

August 21, 2014

Kenneth Rapoza – Forbes, 8/20/2014

Brazil’s Central Bank injected another $12 billion into the economy on Wednesday following analyst projections that this year’s GDP will print at just 0.79%.

This is the second time the Central Bank has provided some form of stimulus to lenders. In July, it provided around $21 billion to banks to induce lending.

Brazilian equities have been on a tear lately no matter what the economic fundamentals suggest. The iSharesMSCI Brazil (EWZ) exchange traded fund is up 6.07% in the past five days, clobbering the benchmark MSCI Emerging Markets index by roughly 500 basis points.

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Silva Economy Adviser Warns Against Brazil Currency Intervention

August 20, 2014

Paula Sambo – Bloomberg, 8/19/2014

Policies to control inflation with a stronger real pose a threat to Brazil’s economy, Eduardo Giannetti, who is economic adviser to potential presidential candidate Marina Silva, said.

“The currency intervention in Dilma’s government was to contain domestic prices,” he said today at an event in Sao Paulo about the administration of Dilma Rousseff, cautioning that he was speaking on his own accord and not as Silva’s adviser. “That is an action that generates distortions and is a worrying framework for the country.”

Silva, 56, became the wild card in Brazilian politics after her running mate, presidential candidate Eduardo Campos, died in a plane crash last week. She replaced Senator Aecio Neves as second in polling for the Oct. 5 vote and is statistically tied with Rousseff in a possible runoff, according to public opinion research company Datafolha.

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Brazil Eases Credit Rules to Inject $4.5 Billion in Economy

August 20, 2014

Matthew Malinowski and Karen Eeuwens – Bloomberg, 8/20/2014

Brazil’s central bank has eased rules on reserve requirement for a second time this quarter in a bid to boost credit in a slowing economy.

The bank published the rules in today’s Official Gazette, altering rules for payments on non-cash deposits. The changes will channel about 10 billion reais ($4.5 billion) into credit, the bank said in a statement published on its website. The move follows the bank’s decision in July to free up 30 billion reais, according to the statement.

President Dilma Rousseff’s administration is struggling to contain above-target inflation without causing growth to deteriorate further. The central bank has kept the benchmark interest-rate at the highest level since 2012, after lifting the key rate by 375 basis points in the year through April. The moves haven’t improved the economic outlook, according to analysts surveyed by the central bank, who forecast growth will slow and inflation will accelerate this year compared to last year.

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‘Made In Brazil’ Under Pressure, Study Shows

August 20, 2014

Kenneth Rapoza – Forbes, 8/19/2014

Brazil is more than samba and soccer. But the airplanes it makes and the soybeans it grows are coming under increasing cost pressures, making a number of manufacturers there lose ground to competitors in the U.S.

A new study by the Boston Consulting Group (BCG), made public on Tuesday, said that Brazil was one of a handful of 25 major exporters that was losing its competitive edge to other countries in the Americas.  In this case, the U.S. and Mexico are often beating Brazil to the punch.

“Improving the productivity of each worker is becoming an increasingly important factor in manufacturing competitiveness across the globe,” said Michael Zinser, a BCG partner. “This is especially true as the once-considerable wage gaps between developed and developing economies continue to shrink.”

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Brazilian Economic Policy Secretary Optimistic About Growth

August 19, 2014

Paulo Trevisani – The Wall Street Journal, 8/19/2014

True to its habit of offering a steady flow of rosy economic forecasts, the Brazilian government is expecting the second half of 2014 will be better than the first, a top official said Monday.

Brazil’s economy expanded by a meager 0.2% in the first quarter of this year compared with the previous quarter. Second-quarter results aren’t out yet, but analysts expect them to be about as bleak.

That’s disappointing for officials hoping the economy would grow faster this year than the modest 2.5% pace clocked in 2013. In the central bank’s latest weekly survey of about 100 private-sector economists released Monday, the group projected gross domestic product would rise 0.79% this year, down from its prior forecast of 0.81%.

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Brazil markets rise as poll shows election headed to 2nd round

August 18, 2014

Walter Brandimarte – Reuters, 8/18/2014

Brazil’s financial markets closed higher on Monday as an opinion poll showed President Dilma Rousseff, criticized by investors for interventionist policies, is unlikely to win an outright re-election on Oct. 5.

The poll increased uncertainty about who is likely to face Rousseff in a second-round runoff – market favorite Aecio Neves or environmentalist Marina Silva.

Silva was statistically tied with Neves in a Datafolha poll, the first conducted after her running mate Eduardo Campos died in a plane crash last week. Silva’s presidential bid is expected to be formally announced by the Brazilian Socialist Party on Wednesday.

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Brazil Equities Due For Correction

August 18, 2014

Kenneth Rapoza – Forbes, 8/15/2014

Investors may be cheering the likelihood of Brazil’s incumbent Dilma Rousseff being kicked to the curb in the October presidential election, but that will not be enough to push the iShares MSCI Brazil (EWZ) exchange traded fund over $50. That’s because the fundamentals of this economy are not sound.

Brazil may have been a technical trade for a while. Or even a FIFA World Cup trade. But the Dilma trade can’t last for long. Brazil will start getting expensive. And fundamentals will return to the fore. This economy has seen its better days.

The June IBC-Br — a monthly Central Bank proxy for quarterly GDP — came in at a -1.5% month over month, ending the second quarter on a bad note. As a reminder, industrial production during that month decreased 1.4%  and broad retail sales dropped 3.6%.

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