The Upgraded BBB Investment Rating of Brazil

As posted in the forum, Brazil has been classified last April 2008 by “Standard and Poor’s” as a country with an investment rating of BBB. This is defined with its “Capacity to service and repay debt. Many find this satisfactory, but risks increase when conditions become adverse. Previously, Brazil was given the grade of BB, which was defined with it’s “Increasing uncertainty surrounding service and repayment of debt” and “debt carries an increasing degree of risk”.

Hence, Brazil’s new upgrade signifies that there is a stable confidence of the foreign investors in the Brazilian economy, which in turn had created a burgeoning middle class and consequently a greater demand for residential properties. Amidst the fact that expenses of foreigners traveling to Brazil have also increased despite real appreciation, which could be an indication of moving away from the all-inclusive packaged traveler, there is also an increase in second residency tourists that are more likely to purchase a house and spend on the local economy. All these are good indicators for the property market, making it an ideal time for investors to buy into the Brazilian market.

Moreover, the upgrade was also supported by a news article released last April by the Central Bank that indicates transaction accounts having shown deficit but experiencing an offset due to the capital account inflows. FDI net inflows show net positive balances amounting to $3.9 billion. Net positive results for stocks have reached $5.9 billion. Net positive results for bonds are at $230 million, and international reserves are estimated at $195.8 billion.

However, not all members in the forum are confident in the upgrade. This is due to the high interest rate of 12.25% per annum and inflation. In fact, this can be seen in the high increase of prices, especially in flour, beans, and other staple food items.

Such doubts about the status of Brazil were also supported by a few members who have cited the phenomenal performance of three of the BRICS countries–Russia, India, and China. These three countries continue to grow 2% faster than what was predicted, thus collectively amounting to 16% of the global GDP. Although Brazil was mentioned to have seen an increase in its growth rate in the past six months, the status is considered quite unreliable since detractors claim that optimistic predictions on BRIC economies actually ignore major hurdles in their development. This would include future political instability and rampant corruption as well as worn-out and non-updated infrastructure.

Amidst the differing views presented in this forum, several members contended that Brazil is relatively doing well in spite of its increased interest rates and increased food prices.

Hence, after “Standard and Poor’s” upgrade on Brazil’s investment rating to a “BBB” last April, another private independent rating service delivered Brazil’s credit rating in less than a month. Fitch Ratings is the second large rating agency to have upgraded Brazil’s credit rating. In fact, they have raised it from a BB- to a BB+.

According to the rating agency, this improvement in Brazil’s credit rating is an indication of the dramatic improvement in the country’s external and public sector balance sheet as well as the dedication of the government in keeping a lowered inflation rate and a budget surplus that would dispel concerns on medium-term fiscal growth.

The recognition given by these two major credit agencies is due to Brazil’s solid fiscal position, thus proving that it has the capacity to grow with stability. The announcement of this upgrade in the country’s investment rating would further increase the number of foreigners who would buy Brazilian securities.

Thus, upon the announcement of Fitch’s upgrade, the Real exchange value against the US Dollar has reached 1.639 per dollar.

Read more about the investing in Brazil in the Brazil Forum.




Leave a Reply

XHTML: You can use these tags: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <s> <strike> <strong>