Brazil’s cup is half full
There is too much bearish sentiment towards Brazil - investors shouldn't forget the long-term trends and the fundamental strengths of the economy.
There has been a lot of negative commentary about Brazil recently, not least some in this magazine – for example, this month’s look at the precarious state of Petrobras, which should be of real concern. But it does feel that everyone now is piling in. Market observers, it seems, are disillusioned with the Brazil play and fund-flow analysts such as EPFR report long and lengthening streaks of equity and fixed-income money leaving the country.
Bankers in São Paulo were saying that there was too much hype three or so years ago, and suggest that now there is too much pessimism. International investors are certainly bearish on Brazil. It has been sluggish in comparison with its larger Latin neighbours and low investment, high inflation and a deteriorating fiscal position are points of concern. Productivity is hampered by poor infrastructure, over-regulation and high taxes, and a public education system that needs radical improvement.
Next year will be a big one for Brazil and it faces many short-term challenges, many of which are of substantial consequence. But as necessity is the mother of invention, then next year could be the mother of serious reform.