Has Brazil blown it?

September 30, 2013

The Economist, 09/29/2013

FOUR years ago this newspaper put on its cover a picture of the statue of Christ the Redeemer ascending like a rocket from Rio de Janeiro’s Corcovado mountain, under the rubric “Brazil takes off”.

The economy, having stabilised under Fernando Henrique Cardoso in the mid-1990s, accelerated under Luiz Inácio Lula da Silva in the early 2000s. It barely stumbled after the Lehman collapse in 2008 and in 2010 grew by 7.5%, its strongest performance in a quarter-century.

To add to the magic, Brazil was awarded both next year’s football World Cup and the summer 2016 Olympics. On the strength of all that, Lula persuaded voters in the same year to choose as president his technocratic protégée, Dilma Rousseff.

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Brazil growth: how fast is enough?

June 4, 2013

Joe Leahy – Financial Times, 06/03/2013

The estimates for economic growth in Brazil this year – and next – continue to tumble after last week’s weaker-than-expected first quarter growth.

A weekly survey by the central bank of 100 economists showed they had lowered their forecasts for 2013 to 2.77 per cent from 2.93 per cent the prior week.

Other economists have reported lower estimates. Private bank Itaú is expecting 2.4 per cent growth this year, down 40 basis points from its previous forecast, and only 2.8 per cent next year, down from 3.3 per cent.

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Rousseff aims $2.5 billion at energy research: corporate Brazil

June 3, 2013

Stephen Nielsen – Bloomberg, 06/03/2013

Brazil will pour 6.1 billion reais ($2.85 billion) to fund renewable-power and biofuel technology research, accelerating its efforts to modernize its energy industry and shift away from a commodity-export based economy.

The country plans to triple funds for companies including Bunge Ltd. (BG) and Petroleo Brasileiro SA that are developing processes to turn sugar cane into high-margin chemicals and boost ethanol output, said Alexandre Tanaka, an official with Brazil’s research-financing agency Finep.

Brazil’s ambition is to lead development of the next generation of biofuels after a decade of hyperinflation stymied research budgets. The country is seeking to become a supplier of fuel-production technology and processes rather than purchasing them from other countries, Tanaka said. Its position as the world’s top producer of sugar cane may help it succeed with an approach some U.S. companies have abandoned.

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The view toward closer U.S.-Brazil Relations

May 23, 2013

Julia E. Sweig – Council of Foreign Relations, 05/22/2013

Vice President Joe Biden will visit Brazil, Colombia, and Trinidad and Tobago next week. Don’t assume this American vice president is merely ceremonial: he has a significant domestic portfolio including immigration, guns, and the budget. Nor is his visit one of those bloated good will trips meant to dole out patronage or shore up support for some American foreign venture. Rather, it seems the Obama administration has decided to try and seize a huge, and to date largely missed opportunity related to jobs, energy, and prosperity in Latin America.

Why the sudden awakening? Immigration reform, the President’s top legislative priority this year, and a political must for both parties, has alerted the White House to the potential foreign policy benefit in Latin America, and not just Mexico, of solving a major domestic problem. In fact, the White House and the American public’s disposition to deal with once untouchable domestic politics around immigration, guns, energy, marijuana legalization, and maybe even Cuba, open the door for potential convergence with Latin America. And provide a chance to get beyond the usual ideological battles that too often sap diplomatic energy and patience.

Biden arrives in Brazil five months before President Rousseff’s state visit to the United States and ten years since President Bush and President Lula convened their cabinets for a joint ministerial meeting, their recognition of the strategic potential for the two democracies and their economies. Since then, dozens, if not hundreds, of ministerial and sub-ministerial meetings have followed. And we have stitched together dozens of inter-governmental dialogues, initiatives, defense, business, scientific, and educational exchanges. Yet there is still something missing between the two powers—call it a lack of ambition.

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Brazil’s service sector picks up steam in April

May 6, 2013

Silvio Cascione – Reuters, 05/06/2013

Growth in Brazil’s service sector accelerated slightly in April after a surprise slowdown in the previous month, according to data released on Monday, stoking hopes of a gradual recovery in Latin America’s largest economy.

HSBC’s Purchasing Managers Index for the Brazilian services sector rose to 51.3 in April from 50.3 in March on a seasonally adjusted basis, signaling activity at service providers expanded at a slightly faster pace than in the previous month. Readings above 50.0 indicate expansion.

“Following the very weak increase in activity reported by firms in March, the April results seem more consistent with the modest recovery we believe the Brazilian economy is experiencing,” said Andre Loes, chief Brazil economist at HSBC.

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Barclays raises concern over Brazil

May 1, 2013

Kenneth Rapoza – Forbes, 04/30/2013

Brazil isn’t going broke anytime soon. Nor is it going the way of Venezuela and Argentina with its uber populist policies and threats of defaults of some kind or another — either through debt, or by canceling contracts with multinationals and just kicking them out of the country.  But Brazil is not doing as well as investors would like.

Solvency is not a short- to medium-term issue in Brazil, but according to Barclays Capital economist Marcelo Salomon in New York, the market is too complacent about the fiscal risks coming down the pike.

The breakdown of government expenses is worsening, Salomon says in a note on Tuesday, as investment spending remains very constrained.

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Nike’s massive BRIC opportunity: China turning around and Brazil’s World Cup and Olympics could take stock to $80

April 23, 2013

Agustino Fontevecchia – Forbes, 04/22/2013

The tide may have turned for Nike. The athletic footwear company seems poised to see continued margin expansion and the return of profitability in China over the next year.  Emboldened by recent success, management appears confident in the strength of its brand and its capacity to raise prices.  Nike also has a double whammy of an opportunity inBrazil, with the coming World Cup in 2014 and the Olympics in 2016.  The stock currently trades around $60 a share, but it could top $80 if things go their way, according to UBS ’ equity research team.

Nike has zigzagged over the past year, its stock falling precipitously and surging dramatically on any indication that margins were set to either expand or compress.  After its latest earnings report, where the company revealed margin expansion for the first time in two years, Wall Street has once again gone bullish.

In a thorough note released Monday, UBS’ Michael Binetti made the case for buying the stock, expecting solid returns over the next two years.  After meeting with management, Binetti spoke of a “very optimistic top line outlook from the company over the next few years,” pointing at “a deep innovation pipeline in premium footwear.”

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Chart of the week: Brazil’s foundations, undermined

April 22, 2013

Jonathan Wheatley – Financial Times, 04/22/2013

Brazil’s central bank is in tightening mode again, raising its policy interest rate last week after a long cycle of loosening that began in August 2011. It is worried that inflation is on the rise and less worried, apparently, about slow growth.

But behind recent numbers on inflation is another set of numbers on retail sales, which fell in February for the first time in a decade. If that turns into a trend, the very foundations of Brazil’s recent growth story will be undermined. Chart of the week takes a look.

The blue line on the chart below shows retail sales by volume, seasonally adjusted. As you can see, they have been rising almost without interruption for the past decade, undeterred by the global crisis of 2008-09 that sent so many markets around the world into a tailspin. More so even than global demand for Brazil’s abundant export commodities, it is domestic consumer demand that has underpinned Brazilian growth for the past several years.

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Brazil: The creaking champions

April 22, 2013

Joe Leahy – Financial Times, 04/21/2013

In 2010, when 60 Minutes came to Brazil to do a piece on the “World’s Next Economic Superpower”, the US television programme chose Eike Batista as the ambassador for the country.

“You know, in the last 16 years, Brazil has put its act together. This is it. Hello, time for Americans to wake up,” Mr Batista said with trademark brashness.

In retrospect, the discovery by primetime TV of Brazil’s economy should itself have been a sell signal for investors that a long boom in Latin America’s biggest economy, fuelled by high commodity prices and credit, was peaking.

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Gibraltar seeks to woo Brazilian hedge funds and private equity

March 26, 2013

Vinod Sreeharsha – Deal Book/New York Times, 03/22/2013

Tiny Gibraltar is trying to cash in on Brazil’s rising wealth.

Gibraltar, the British self-governed territory south of Spain, is now working to lure hedge funds, private equity and other investors in Brazil and Latin America to expand to its shores.

Government officials visited Rio de Janeiro this week to promote Gibraltar’s stability, access to the European Union and low taxes. (Interest, dividends and capital gains are not taxed in Gibraltar). The officials said that they had met with approximately 20 firms on the sidelines of a major hedge fund conference here.,

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