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Brazil: Financiers trade different experiences of the same country

Recent conversations with bankers and economists in Brazil have been confusing – sometimes it is hard to believe that both groups are talking about the same country.


First the positive bankers and traders: financial flows and assets have jumped in the last 14 months or so. The Bovespa has more than doubled as international investors have moved into one of the largest emerging markets.

The rally has also been enjoyed by many local investors, who rode the stock performance generated by a rapid fall in the country’s risk premium and lower debt servicing costs from the fall in the base rate. Selic (the central bank’s overnight rate) is expected to hit 6.5% – a record low. Just 14 months ago the central bank had Selic at 14.25%.

The lower ‘risk-free’ rate has created a small but important shift in domestic risk appetite, with bankers reporting healthy demand when raising new alternative asset investment vehicles, such as private equity, distressed debt funds and commercial real estate investments. And bankers confirm that many more of these non-traditional fund raising plans are in the works.

But despite the fall in interest rates, the real economy is failing to pick up momentum. True, it did return to positive territory in 2017, but barely. A 1% increase was a sideways move after a near 8% contraction in the preceding two years.

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