Her Name is Rio
As a follow up to our initial post – A Brazilian – we came across this brief piece from the good folks at PIMCO this week, echoing our constructive view on the Brazilian economy. Brigitte Posch, EVP and a member of PIMCOs Emerging Markets Team, makes the following observations:
Brazilian local interest rates are attractive on both a nominal and a real basis, as they are still considerably higher than those in comparably rated countries. Because of this as well as the strength of the country’s macroeconomic policies, we expect Brazilian local rates to continue to trend lower and converge with interest rates in the developed world. For now, however, the disconnect between Brazilian rates and rates in other investment grade countries makes Brazil one of the world’s most attractive markets for yields.
With rates in Asian economies generally much lower and emerging market (EM) Europe facing fiscal constraints that are affecting policy, Brazil is the rare case of a solid and improving EM credit with credible monetary policy and the offer of outsized local yields on both an absolute and relative basis.
Proactive public policies and strong support for expansion of infrastructure studies and projects are at the core of Brazil’s plans to boost growth. In the past year, the Brazilian government has placed particular emphasis on public works as a means to offset the effects of the global economic recession.
Another happy development: Brazil recently won the right to host the World Cup of 2014 and the Summer Olympics in 2016, an event that should brings billions in fresh investment.
We adamantly agree – particularly in light of the sovereign investment alternatives in the developed world today – and continue to hold a core position in long term Brazilian government debt. Cyclical corrections in the Brazilian Real, likely brought on by investor risk aversion, should be viewed as long-term buying opportunities.