Brazil Downgraded Again, Five Months After Losing Investment Grade Status

Translated by Tom Gatehouse – Folha de S. Paulo, 02/08/2016

The credit ratings agency Standard & Poor’s downgraded Brazil from BB+ to BB on Wednesday (17), after deciding that the country’s process of fiscal adjustment will take longer than expected. The outlook is negative.

S&P stripped Brazil of its investment grade rating in September last year, with Fitch following suit in December. Of the big three ratings agencies, only Moody’s has maintained Brazil’s investment grade status – though it too is considering a downgrade.

In a statement, S&P said that it expects the public deficit to be on average 7% of GDP between 2016 and 2018, with public debt expected to be around 60% of GDP.

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Brazil’s Fall From Darling to Doldrums Cemented by Junk Status

Paula Sambo, Ney Hayashi Cruz – Bloomberg Business, 12/16/2015

Brazil’s breathtaking fall from investor favorite to emerging-market pariah shows no signs of slowing.

On Wednesday, Latin America’s largest economy lost its investment-grade status when Fitch Ratings became the second of the three main debt-ratings firms to cut Brazil to junk. And a third downgrade, this time by Moody’s Investors Service, can’t be far behind as fiscal accounts deteriorate and a political stalemate persists, according to Torino Capital LLC’s Jorge Piedrahita.

Instead of rising star, Brazil now has a new title: world’s largest junk-rated sovereign borrower. It’s a stunning reversal from its heyday in the late 2000s when the country, riding the commodities boom, shrugged off the financial crisis that rocked the developed world and won its first investment grade.

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Gloom on Brazil Finances Deepens

Julie Wernau – The Wall Street Journal, 12/16/2015

Brazil’s finances took another turn for the worse Wednesday, as a second sovereign-rating downgrade sent the nation’s bonds and currency slumping anew.

Fitch Ratings downgraded Brazil’s bonds to double-B-plus, the highest junk rating, from the lowest investment-grade rating and said further downgrades are possible. The rating company cited Brazil’s ballooning budget deficit, rising inflation and political unrest, all of which have been intensified by the deepening commodity bust.

The move hardly shocked investors, coming at the end of a year that has brought a deepening sense of gloom to Brazilian markets that a decade ago many viewed as holding substantial promise.

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China to invest $50b in Brazil infrastructure

BBC, 05/15/2015

China is planning to invest up to $50bn (£32bn) in Brazil for new infrastructure projects.

The deal is due to be signed by banks from both countries during a visit by Chinese Prime Minister Li Keqiang to Brazil next week.

The money will go towards building a railway link from Brazil’s Atlantic coast to the Pacific coast of Peru to reduce the cost of exports to China.

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Potential ‘fallen angels’ show impact of Brazil slowdown

Jonathan Wheatley – Financail Times, 5/6/2015

A darkening gloom hangs over Brazil’s economy. Analysts are steadily downgrading their growth projections for the economy this year, while inflation expectations creep ever upwards.

As evidence that the strain is being felt by businesses, a report from Moody’s Investors Service shows Brazil overtaking Russia as home to the emerging world’s largest number of potential “fallen angels” — companies at risk of losing their investment grade credit rating and falling into speculative grade, or junk.

The central bank’s latest weekly survey of market economists shows Brazil’s gross domestic product shrinking 1.18 per cent this year and consumer prices rising 8.26 per cent.

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Big Property Investors Hunt for Bargains in Brazil

Peter Grant – The Wall Street Journal, 5/5/2015

Global real-estate investors such as Blackstone Group LP, Brookfield Property Partners LP and Global Logistic Properties are taking advantage of the political upheaval and economic decline in Brazil by bargain hunting in the country.

Most investors have moved to the sidelines as rents and occupancy levels have fallen. With Brazil’s growth rate plunging and protests mounting, the volume of reported office property sales hit only $584 million last year, compared with $698.6 million in 2013 and $1.92 billion in 2012, according to Real Capital Analytics Inc.

But Blackstone’s real-estate group has made two acquisitions in recent months: stakes in a Brazilian home builder and a portfolio of four office buildings in Rio de Janeiro. Blackstone’s real-estate group also is opening its own office in the country for the first time, to be led by Martcelo Fedak, formerly head of real estate for Brazilian financial-services firm BTG Pactual.

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Brazil’s Real Climbs as Higher Rates Seen Attracting Investors

Filipe Pacheco and Paula Sambo – Bloomberg Business, 4/27/2015

Brazil’s real rose for a fifth straight day amid speculation the central bank will raise borrowing costs by another half-percentage point this week, making local assets more attractive to international investors.

The real gained 1.2 percent to 2.9170 per dollar at the end of trade in Sao Paulo, an eight-week high. The rally that began April 20 is the longest since June 2014.

Buying the real with borrowed dollars has returned 11 percent this month, the most among the 31 major currencies tracked by Bloomberg after the ruble. The real climbed Monday as analysts forecast that Brazil will lift the target lending rate on April 29 by 50 basis points for a fourth straight meeting to curb above-target inflation. The Federal Reserve, meanwhile, is expected to hold borrowing costs steady that day as U.S. economic growth shows signs of slowing.

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Brazil’s reality show

Ilan Goldfajn – Financial Times, 4/21/2015

I have just returned from abroad. It felt like déjà vu from a distant past. Explaining Brazil has become complex again. “I read about corruption accusations, popular protests, deficits and crises; what is happening in Brazil?” I was asked by an important investor. The answer inevitably tends to be long and full of Buts and Ifs.

Nevertheless, I will make an effort to summarize it here in a straightforward way. Brazil did not invest enough during the favorable commodity cycle. Policymakers did not recognize the end of the cycle in time. When they did, they tried to go back to a past that no longer existed. Now, Brazil must adjust everything at once to avoid a worse crisis. But markets are dynamic: with the recent depreciation of the real, there are already investors looking for opportunities. That is the reason Brazilian assets rebounded lately.

All Latin American economies – from Argentina and Venezuela to Chile and Peru – are experiencing declining growth. This is a sign of a common factor: the end of the favourable global cycle of commodity boom and growth in China and abundant capital flows to emerging markets. Corruption accusations and investigations are surfacing in many Latam countries such as Brazil and Mexico, but also in Chile, which signals that even the tolerance to such deviations is cyclical.

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Investors tiptoe back into Brazil markets as inflation peaks

Walter Brandimarte – Reuters, 4/17/2015

Some investors are carefully betting that the recent selloff in Brazilian financial markets was overdone, pointing to signs that inflation is slowing and the government is getting its finances in order.

Many expect inflation will come down from its current 11-year high of 8.13 percent, thanks to the central bank’s interest rate hike cycle of 1.75 percentage points since October, as well as the economic slump’s effect on demand.

Meanwhile, state-run oil company Petrobras is expected to this month post financial statements that have been delayed by a huge corruption scandal, greatly reducing the risk of a major debt crisis that could have cost Brazil its investment grade credit rating.

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Brazil’s Economy Expanded Slightly in 2014

Jeffrey T. Lewis and Rogerio Jelmayer – The Wall Street Journal, 3/27/2015

Brazil’s economy posted in 2014 its worst performance by far under President Dilma Rousseff’s administration, a blow to her prestige as her government works to regain credibility with markets and pass an austerity program through Congress.

The country’s gross domestic product grew just 0.1% in 2014 from 2013, and expanded 0.3% in the fourth quarter from the third, Brazil’s statistics agency said Friday. GDP shrank 0.2% in the fourth quarter of 2014 from the same period a year earlier.

The agency changed the way it calculates GDP starting in the fourth quarter, including activities such as investment in research and development for the first time, to bring the methodology more in line with international standards.

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