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Tuesday May 1, 2012

Brazil seen rising as investment favourite

By THOMAS HUONG
huong@thestar.com.my


KUALA LUMPUR: Brazil will remain as an attractive investment destination for the next few years, according to Pedro Bastos, who is HSBC Global Asset Management's regional head for Latin America.

Bastos pointed out that of the firm's US$49bil (RM148.5bil) of assets under management in Latin America, about 82% or US$40bil (RM121bil) was in Brazil.

“Brazil is the hub for the region in terms of the creation of funds.

Bastos: ‘Among all emerging markets, Brazil has been the best performer for the last 10 years, both in equities and fixed income.’

“Among all emerging markets, Brazil has been the best performer for the last 10 years, both in equities and fixed income,” he said during a media briefing here yesterday.

Bastos said there were about 1.1 trillion dollars of assets under management in Brazil, and most of these are on short term fixed income products such as up to three years treasury notes and bonds.

He pointed out that last year, Brazil achieved a record high in foreign direct investments (FDIs), which reached about US$65bil (RM197bil).

“This is because companies see Brazil as a major consumer market.”

Bastos said consumption represented 60% of the Brazilian GDP (gross domestic product), and about 90% of the country's 190 million population are urbanised.

“We have an increasing middle class, which is about 55% of the population. In the last 10 years, personal income growth has been consistent at 4.5% to 5%.”

He noted that interest rates in Brazil were falling rapidly although they were still among the highest in the world.

“Inflation is running now at around 5.4%.

“The nominal interest rate is 9%, and we predict this to fall to 8.5% by the end of the year.”

Bastos said he had not seen interest rates at such low levels in Brazil before.

“Not too long ago, in 2006, the nominal interest rate was 17.25%.

“There are many reasons for this. In the last century, Brazil has suffered from many years of hyper-inflation and slow growth.”

Bastos pointed out that a falling interest rate environment would help fund infrastructure development in Brazil.

“For many years, high interest rates made it difficult to attract funding and to provide viable returns on infrastructure investments. But in the next five to 10 years, the number of proposed infrastructure investments in Brazil could add up to more than one trillion dollars.”

He said foreign investors were attracted by the fact that Brazil was a top commodity producer.

“We are number one in terms of sugar cane, ethanol and coffee. We are also a top producer of soy bean, poultry and beef and exporter of iron ore. Across the globe, Brazil has the largest reserve of arable land immediately available for expansion and agricultural production.”

According to Bastos, Brazil is also going to be a oil exporting nation, with output to increase from 2.2 million barrels per day to five million barrels per day by 2020.

He said this was helped by deepwater oil discoveries.

HSBC has forecasted the Brazilian economy to expand by 3.7% for 2012, and 4.5% for 2013.

The Brazilian government's GDP forecast is 4.5% for 2012 and 5.5% for 2013.

“HSBC has a conservative forecast. We are more cautious about the global slowdown and what the impact would be on the Brazilian economy,” Bastos said.

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