Brazil Receives Thumbs up from Financial Giants

Following a ratings upgrade from two financial agencies, institutional investors are now looking towards the Brazilian market to boost their profits.

Global ratings agency, Fitch, and market intelligence provider Standard & Poor’s have upgraded Brazil’s credit rating as a safe place to invest, taking into consideration that Brazil is highly unlikely to default on its liabilities.

The new rating will make Brazil more attractive to a wide range of international investors such as large US pension funds. These funds are only allowed to invest in countries with positive confirmation that monetary obligations can be met.

Julian Thompson, Head of Emerging Market Equities at Threadneedle, comments, “The upgrade opens Brazil to a wider investor audience. A lot of funds will only move into a country when it has investment grade rating.”

Emerging Portfolio Fund Research has shown that inflows into Brazilian equity funds have grown over six consecutive weeks reaching £716m whereas other funds around the world have seen a withdrawal of funds. This inflow has been made more remarkable given that outflows were £324m before that period.

The investment rating upgrade is viewed as a huge financial step for Brazil, considering the country was on the brink of bankruptcy six years ago. The unexpected economic growth, coupled with the government’s commitment to reform, has escalated the country’s financial reserves and drawn more and more investors to Brazil.

Investors have predominantly focused on Brazil’s commodities - the country has a huge bank of natural resources - especially as it is now viewed as a safe haven from the sub-prime lending turmoil.

James Gonzalez, Market Analyst at Obelisk, comments, “Investors’ appetite has traditionally been in the financial markets due to the country’s significant bank of natural resources. However, property investment in Brazil is gaining growing attention as internal domestic spending increases. Brazil is undoubtedly the most exciting investment place to emerge for many years, with Brazil property investment creeping onto the winner’s podium.”

Mr Thompson adds, “Once an investment grade rating has happened, the country risk has been reduced. The demand for middle income residential property is strong and remains relatively good value.”

News submitted by Alison Kane, Obelisk International