December 9, 2013
Joe Leahy – Financial Times, 12/8/2013
Global investors may be growing wary of emerging markets as the US prepares to scale back its monetary largesse next year, but one fund has hit on what it hopes could be a boom industry – Brazilian fraud.
The move by New York-based hedge fund Platinum Partners to invest in the recovery of Brazilian fraud claims worth R$12bn (US$5.1bn) shows how investors are venturing deeper into the more esoteric areas of emerging markets in their quest for yield.
Under the deal, international asset chaser Martin Kenney, a Canadian lawyer whose previous cases include representing the liquidators of the assets of renowned Texan fraudster Allen Stanford, has assembled a portfolio of 10 cases in which Platinum Partners will invest.
December 5, 2013
Financial Times, 12/04/2013
On Friday the eyes of the world will turn to Brazil for the draw of next year’s football World Cup finals. Officials had long hoped the tournament could mark Brazil’s coming of age as a global economic superpower. Yet, as they wrestle with an economic slowdown even the traditionally cheerful Brazilians are struggling to keep up their optimism.
For much of the past decade, Brazil has sprinted like one of its outstanding footballers. In 2010, growth jumped to 7.5 per cent, thanks to China’s insatiable appetite for its commodities and credit-driven domestic consumption. The turning of the commodity cycle exposed the limits of this economic model. In the three months to September, output fell by the largest margin since early 2009. This year the economy is expected to expand by a disappointing 2 per cent.
The trouble with the Brazilian economy lies in its chronic lack of infrastructure. At 19 per cent of national income, investment is well below the typical level for an emerging market. Since domestic savings are low, Brazil must rely on external capital to finance the roads and bridges it needs. But foreign investors have become increasingly wary of Brazil because of its high taxes and excessive red tape.
November 21, 2013
Raymond Colitt – Bloomberg, 11/20/2013
Investors have never been more pessimistic about Brazil President Dilma Rousseff’s policies, with only 10 percent saying the nation can avoid a credit-rating downgrade in the next year, a Bloomberg Global Poll shows.
Fifty-one percent say they are pessimistic about Rousseff’s policies, compared with 22 percent when she took office in January 2011, according to the poll of 750 analysts, investors and traders who are Bloomberg subscribers. The world’s second-largest emerging market will offer one of the worst opportunities over the next year compared with the U.S., U.K., European Union, Japan, India, Russia and China, respondents say.
The government has been struggling to revive the economy as above-target inflation and a widening budget deficit erode investor and consumer confidence. Rousseff will end her first term next year with the slowest four-year expansion of gross domestic product since 1990, according to the latest central bank survey of economists. Standard & Poor’s in June placed Brazil’s rating on negative outlook, citing weak growth.
November 18, 2013
Gabrielle Coppola & Josue Leonel – Bloomberg, 11/18/2013
The real climbed the most among emerging-market currencies as a planned easing of economic regulations in China, the nation’s biggest trading partner, offset Brazil’s fiscal concern.
The currency appreciated 1.4 percent to 2.2813 per U.S. dollar at 12:46 p.m. in Sao Paulo after declining on Nov. 13 to 2.3341, the weakest level since Sept. 4. Swap rates on contracts maturing in January 2015 fell seven basis points, or 0.07 percentage point, to 10.73 percent.
Brazil sold $496 million of foreign-exchange swaps today as part of a $60 billion intervention program to support the currency and curb import price increases. The real has pared its gain since the program was announced Aug. 22 to 6.6 percent on concern the swelling government budget deficit will lead to a credit rating cut.
November 18, 2013
Francisco Marcelino – Bloomberg, 11/17/2013
Brazil’s central bank President Alexandre Tombini didn’t see any shortage of foreign currency in the country’s spot market in the week the real declined to a two-month low.
The nation and other emerging markets face a “sell-off” because of “interest rate normalization” in advanced economies, Tombini said in a speech delivered in Santiago on the evening of Nov. 15 and published on the Central Bank of Brazil’s website yesterday. The world’s second-biggest emerging economy after China is “providing currency hedge for the private sector” with an $100-billion intervention program for 2013, Tombini said.
Brazil’s real has fallen 5 percent since Oct. 31, when the government said its budget deficit widened to the largest in almost four years on concern about a credit rating downgrade. On Nov. 13, the currency dropped to 2.3341 per dollar, the weakest since Sept. 4.
November 1, 2013
Dawn Kissi – Open Markets, 10/31/2013
An impressive amount for one of the world’s largest emerging markets, yes. However many in the know and those with knowledge of how Brazil’s Central Bank thinks and operates, sees the market intervention as business as usual for BACEN.
Since early 2013, Brazil’s Central bank has been offering approximately the same amount of USD daily intervention swaps to the market on a regular basis, according to Brazil economists and analysts. The key difference with the action taken in August is that the Bank had actually been intervening in the markets via larger auctions, less frequently and on unpredictable dates. In essence, by shifting to a regular schedule and making their plans public, BACEN has now reassured the market, as well as helped to stabilize any expectations, particularly during days of reduced liquidity, explains Paulo Vieira da Cunha, Former Deputy Governor of the Central Bank of Brazil.
According to Vieira da Cunha, “the Central Bank continued to accumulate FX reserves even as it was offering this massive volume of DI/Swaps.” Overwhelmingly, the majority of FX transactions handled in Brazil are done through the futures market, which trades at BM&F Bovespa. The country’s cash (pronto) market is a small one and often illiquid.
August 7, 2013
Joshua Goodman – Bloomberg, 08/07/2013
The first decline in food prices (BZPIIPCM) in two years provided temporary assistance to Brazilian President Dilma Rousseff’s efforts to tame inflation being pressured by the biggest currency slide among emerging markets.
Prices as measured by the benchmark IPCA index rose 0.03 percent in July, in line with analysts surveyed by Bloomberg whose median forecast was for prices to remain unchanged. Cheaper food costs, as well as declines for transportation and clothing, lowered 12-month inflation, which had exceeded the 6.5 percent upper limit of the government’s target range, to 6.27 percent.
Finance Minister Guido Mantega celebrated today’s reading, saying it shows that inflation remains under control in the world’s second-biggest emerging market. Banco Merill Lynch SA forecast monthly inflation will rebound as a rallying dollar puts pressure on companies to raise prices even as policy makers have embarked on the biggest cycle of interest rate increases in the Group of 20.
July 31, 2013
Joel Dimmock – Reuters, 07/29/2013
Global emerging markets equity funds have cut average weightings to Brazil and South Africa for the fourth straight quarter, according to the latest allocations data from fund research firm Lipper.
You can see a full interactive graphic of the allocations data here or by clicking on the snapshot below.
The average allocation to Brazil has fallen by 1.75 percentage points over the past year to stand at 11.6 percent of portfolios by the end of the April-June 2013 quarter. South Africa’s average weighting has fallen to 6.0 percent from 7.3 percent in the second quarter of 2012.
June 25, 2013
Alonso Soto – Reuters, 06/24/2013
Major emerging-market nations will work together to limit the effects that a strong U.S. dollar could have on their economies as the Federal Reserve signals plans to scale back its massive stimulus program, the Brazilian government said on Monday.
Brazilian President Dilma Rousseff and her Chinese counterpart, Xi Jinping, discussed ways to strengthen policy coordination on Monday in a telephone conversation, said Thomas Traumann, spokesman for the Brazilian government.
Rousseff will contact other leaders of the BRICS group, which include Russia, India and South Africa, later this week to discuss concrete measures.
June 24, 2013
Ben Rooney – CNN Money, 06/23/2013
The Bovespa Stock Index (IBOV) is down more than 20% so far this year, making it the worst performer among the major emerging markets.
Investors have been pulling out of emerging markets in anticipation of tighter monetary policy in the United States. The sell-off in Brazil accelerated last month after Federal Reserve chairman Ben Bernanke told U.S. lawmakers that the central bank could begin to slow the pace of its asset purchases later this year.
The Fed has bought some $3 trillion worth of assets since it launched quantitative easing in 2008. Much of that money has found its way into stocks in developing economies as investors ventured into more risky assets.