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Brazil storms to the next level

Jaimie Kanwar

It has been another exciting week for the burgeoning Brazilian economy, reports the Latin Business Chronicle...

In a widely expected move, U.S. credit rating agency Standard & Poor has upgraded its rating of Brazil to investment grade. Previously, Chile and Mexico were the only Latin American countries with the investment grade rating

According to Merrill Lynch, Brazil's new status is 'yet more evidence of the country's continuing boom'. A spokesperson for the company added: "In spite of its somewhat expected nature, the upgrade is a lasting positive for Brazil.

“On the most structural level, it anchors lower risk premia and accordingly the exchange rate and interest rates. As a practical matter, however, the more significant rotation of Brazilian assets to new pools of high grade investors will need to await a second investment-grade rating by another agency."

Record FDI figures

That may come within the next 12 months, according to Credit Suisse. A spokesperson for the Bank explained: “We believe Fitch will be the next agency to grant investment grade to Brazil, probably in a 12-month horizon. Brazil's risk rating remains one notch from investment grade (with neutral outlook) both by Moody's and by Fitch. We expect both agencies to alter the outlook from neutral to positive over the next few months.”

The upgrade comes as Brazil is seeing other positive news as well. Last week, the Central Bank released foreign direct investment figures showing a new record was achieved in the first quarter of 2008, with much of the increase due to Brazil's reinsurance market opening up to foreign competition.

Meanwhile, HSBC last week released a report showing that Brazil's banking sector is expected to continue booming. The report said: “Total private sector loans rose to BRL973.2bn in March 2008, an increase of 31.7 percent in y-o-y terms. Despite the recent monetary tightening and the announced increase in reserve requirements, we believe that loan growth has further to go...We maintain our loan growth forecast range of 21-23 percent for full year 2008.”

Immense potential

Dan Johnson, Managing Director of themovechannel.com, was positive about the developments: "Institutional investment into Brazil is soaring and it remains one of the most attractive destinations for private investors as well. Our investment properties in Joinville are the kind of residential buy to let project that will benefit from the improved infrastructure and economic climate that will result from increased foreign investment into the country.

"As the economy grows, so too will the wealth of Brazilians, thereby having a knock on effect on their buying power. What's a little surprising is that more developers haven't turned their attention to building for the domestic market – a huge and growing population with immense potential.