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Brazil mysterious interest rate cuts & proposed Euro Rescue package… cause to worry?

Who sets interest rates in Brazil: Is it Central Bank President Alexandre Tombini or the country’s President, Dilma Rousseff? That question hung over financial markets after the Central Bank of Brazil cut the benchmark Selic interest rate by half a point, to 12 percent, on Aug. 31. The move was unexpected: The bank’s rate-setting committee had ratcheted up the Selic at its five previous meetings to combat inflation and had not signaled a change in its stance. Yet Rousseff in an Aug. 30 radio broadcast had said rates should begin to fall as the government curbs spending.

(Interestingly a week later Guido Mantega, Brazil’s finance minister, suddenly proposed a “Bric” rescue package for the eurozone this week, he caught not only other world leaders by surprise but also many of his fellow countrymen.

Even as officials from other members of the so-called Bric grouping – Russia, India and China – said it was the first they heard of the idea, many ordinary Brazilians expressed shock at the notion of bailing out the world’s richest trading bloc. FT 16.09.2011)

The abruptness of the shift in monetary policy left money managers such as Guilherme Figueiredo, director of M. Safra, a São Paulo investment firm, with the impression that Tombini had caved in to political pressure. “This is the worst possible decision our central bank could have made at such a moment,” Figueiredo says. “The loss of credibility is going to be large.” Rousseff’s press office declined to comment when asked about the rate decision.

New data indicate that Tombini may have acted prematurely. On Sept. 6, Brazil’s statistics agency said inflation accelerated to an annualized 7.23 percent in August—its fastest pace since 2005 and well above the 6.5 percent upper end of the target range set by monetary authorities for the full year. In an Aug. 31 statement the central bank defended the rate cut, saying it will help shield the economy from the effects of a “substantial deterioration” in the world growth outlook.

It’s true that Brazil shows signs of cooling. The central bank’s economic activity index shrank in June for the first time since 2008, and business confidence in the second quarter slid to its lowest level since 2009. Economists expect growth to slow to 3.7 percent this year, from 7.5 percent in 2010.

Finance Minister Guido Mantega has pledged that the government won’t resort to fiscal stimulus to spur the economy. Whether Rousseff, who took office on Jan. 1, can discipline the spending habits of the multiparty ruling coalition remains an open question, however. Congress rebelled against her first attempts at frugality by proposing bigger salaries for police officers and an increase in health-care spending. Cutting rates in these circumstances “is really risky, with inflation building and wages set to rise,” says Elson Teles, chief economist at Maxima Asset Management in Rio de Janeiro. The central bank is “weighing such subjective things like whether there’s going to be another global recession. What if it doesn’t happen?”

The bottom line: Brazil’s central bank may have bowed to government pressure for a rate cut, endangering its goal of containing inflation.

Source: Bloomberg, 08. 09.2011is a reporter for Bloomberg News.  Ragir   Bristow is a reporter for Bloomberg News.

Filed under: Brazil, News, Risk Management, , , , , , , ,

Alternative Latin Investor: Premium Launch Issue Nr 11.

Alternative Latin Investor August 2011 – Issue 11 Premium Launch Issue


Political Moves: brought to you by

Emerging Markets

Growing M&A Activity between Asia and Latin America?

Latin American Venture Capital: Lessons Learned from China

Be careful What You Wish For- A Brazilian Cautionary Tale


Cuipo: Saving the Rainforest One Meter at a Time

Nuts: Crops that Grow Well in LatAm

Entering The Brazilian Agribusiness Sector (Premium)


Mezzanine Financing for LatAm’s Infrastructure


Investing in Brazilian Oil (Premium)


Fine Art Funds: Taking the Soul Out of Art Investing?

Hedge Funds

MILA Integration

LatAm Fund Due Diligence: What Managers Need to Know (Premium)

Institutional Investing in LatAm: A Contrarian’s View (Premium)

Attracting US Institutional Investors to LatAm Funds (Premium)

Quant Funds in LatAm (Premium)

How HNWI in LatAm View Alternative Assets (Premium)


Spotting Opportunities in LatAm Forex Trading


Tax Incentives: Software Development in Argentina


Mercatrade: Inter-emerging Market Trade

QuickStart Global: Have an Office Anywhere

Real Estate

Airlift Encourages Latin America to reach for the skies

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Please feel free email me directly with comments or questions regarding our current content or with suggestions for future stories. I can be reached at or 202-905-0378.

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Filed under: Argentina, Banking, Brazil, Chile, China, Colombia, Mexico, News, Peru, Risk Management, Wealth Management, , , , , , , , , , , , , , , , , , , , , , ,

Brazil: Greek accord might buy some peaceful time – Monthly Allocation July 2011 – BANIF

Greek accord might buy some peaceful time

We maintain our negative view on the international market for July. In the US, after a series of weak economic indicators, even worse than initially expected, there is no evidence of a turnaround in the short term, especially while the unemployment rate remains at high levels. The ongoing recovery in Japan, together with a slight reduction in commodity prices and the slight reduction in US interest rates (10-yr bonds) seem to us to be a base for some economic recovery that to date has not yet materialized. We believe that potentially increasing inflation might stress the Chinese market, but this possibility remains uncertain for the moment. In the Euro zone, economic indicators tend to play a secondary role to political tension, as the outcome for the Greek debt remains undefined. The recent measures approved by the parliament enabled only the receipt of a tranche of aid previously negotiated. We expect a temporary ease in this tension, which might pick up shortly as it negotiates a second aid package by September, under uncertain political support from all European countries. The dominant feeling is that Greece has no orthodox solution while it remains under the Euro umbrella and tied to its rules. The biggest fear, however, is not of Greece defaulting, but that it would spread the problem to other countries also on the list of troubled economies.

Despite our negative view for international markets, we believe that July may be less negative than June was, mainly due to the temporary ease that the Greek accord brought. However, tensions should increase with the negotiations for the next agreement, expected by September.

Local inflation likely to continue low

Inflation in July might continue low, although not as low as in June, which confirmed and even surpassed the most optimistic expectations. While in June inflation was slightly negative (according to some of the main indexes), consensus expectations for the IPCA in July are around 0.15-0.20%. This reduction was a result of seasonal factors that might lose effect shortly, with inflation likely to pick up as they do.

Delinquency rates increased slightly in June, but we tend to believe this is not a source of concern because: 1) personal income is likely to show improved figures because of the recently reduced inflation and 2) the amount of late payments, the step before writing off debt, decreased for two months in a row.

We predicted that June’s local positive sentiment based on reduced inflation would overcome a bad international scenario, but this did not materialize. We continue with the same views for July, bad internationally and good locally. This time, however, we believe that the negative mood might continue to prevail.

We changed our portfolio to be more defensive, having in mind our somewhat negative view for the market. We have added Tractebel and Telesp (both with 5% stake), two traditionally defensive names, we reduced weight on Even (from 10% to 5%) and have withdrawn Itaú.

Source: BANIF CVC, 01.07.2011

Filed under: BM&FBOVESPA, Brazil, China, News, , , , , , , , , , , ,

Kroll LATAM Risk Report December 2010: Brazil Land Ownership & Infrastructure Fraud, Private Banking KYC, Colombia Corruption

FRAUD – Brazil – Steering Clear of the Potholes
Brazil has committed to billions of dollars worth of infrastructure investments in preparation for the 2014 World Cup and the 2016 Olympic Games. The opportunities for international suppliers, contractors and investors are considerable. So, too, are the risks of fraud.

Vander Giordano, Sao Paulo & Allie Nichols, New York  GO TO FULL STORY

CORRUPTION – Colombia – Battling Fraud & Corruption
By leveraging public outrage, the new administration of President Juan Manuel Santos has an opportunity to change Colombia’s “anything goes” culture and attack the scourge of corruption with a new sense of purpose.

Andrés Otero, Miami & Ernesto Carrasco, Bogota GO TO FULL STORY

PRIVATE BANKING – The Good, the Bad & the Ugly
For private bankers, there’s nothing more enticing than the prospect of landing a wealthy foreign client, but the client’s background and source of funds must be carefully analyzed. Often, only an enhanced due diligence will identify the risks.

John Price, Miami GO TO FULL STORY

LAND RIGHTS – Brazil – Sending the Wrong Message
Turning back the clock, the Brazilian government tightens land rights legislation, restricting land purchases for foreign companies and individuals. Real Estated

Paulo Sérgio Franco & Scheila Santos São Paulo  GO TO FULL STORY

Source: Kroll, 14.12.2010

Filed under: Banking, Brazil, Colombia, Latin America, News, Risk Management, Services, Wealth Management, , , , , , , , , , , , , , ,

Alternative Latin Investor Issue 7 November/December

Alternative Latin Investor Issue 7 November/December 2010 click here for a free issue Issue 7  

Content Index

  • Investing in listed shares of Latin American Infrastructure Companies
Emerging Markets
  • Latin America vs. Asia
  • Ahuacatl: A Fruite for the Ages
  •  Latin American Art Gains Momentum in Europa
  • Brazil’s Energy Industry in the Wake of New South
  • One Economy: Leveraging the Power of Technology to Improve Lives
  • ALI Speaks with Bertrand Delgado: Senior Analyst for Emerging Markets and Latin America at Roubini Global Economics
Real Estate
  • Finding and Entrance into Mexico’s Affordable Housing Construction Finance Market.
  • Increasing Threat of Currency “WAR’s” to Ignite 4th Quarter FX Activity?
Renewable Energy
  • Argentina’s Energy Framework: Preparing for an Onslaught of Renewable Energy Investment
  • Winds of Change: Harnessing Wind Energy in Brazil
  •  New Bills Proposed to Amend the Law on Finance Entities in Argentina
  • How will Nestor’s Passing Affect Argentina
  • ALI speaks with Element 360 Founder, Chad Martin

Source: Alternative Latin Investor 02.12.2010

Filed under: Argentina, Banking, Brazil, Central America, Chile, Colombia, Energy & Environment, Exchanges, Latin America, Mexico, Risk Management, Wealth Management, , , , , , , , , , , , , , , , , , , , , , , , , , , , , ,

Brazil: Full and Inconclusive Agenda – November 2010- IXE BANIF – Monthly Analysis

Invisible hand might move the US market

For November, we expect no relevant data coming from the economic indicators in Europe or in the US. One of the main drivers of the month, however, should come from the FED in its meeting on the 2nd and 3rd. We expect immediate action announced in the form of purchases of securities in the financial market, irrigating it by around US$500bn in six months. Last month, deflation was the biggest fear but since then, rumors of FED actions have turned these fears into expectation of inflation. The first practical signs of this change happened at the end of October, when the Treasury sold US$10bn of 5-yr Treasury Inflation Protected Securities (TIPS) with negative yield, indicating that investors are already betting on increasing inflation. The full effects of a government-induced inflation are uncertain, but we believe that the initial sentiment on such an announcement would be positive.

Mixed drivers for Brazil

We believe investors will closely monitor six main factors in November that should affect the local market: 1) The performance of foreign markets; 2) the end of the bad feeling on Petrobras’ capital increase; 3) the end of the elections; 4) companies 3Q earnings; 5) the stability of Brazil’s FX and 6) the domestic economy. The first three items are likely to be positive. Items 4 and 5 can be mixed and bring volatility and item 6 is likely to be seen negatively. Given these mixed drivers, we foresee the same scenario we projected for October: the market moving sideways with volatility.

We have heavily changed our suggested portfolio again, as we did last month, with the inclusion of Petrobras and Lojas Renner (with weights of 20% and 5%, respectively). We have reduced weights on Guararapes, Telesp and Tractebel (both from 10% to 5%) and have withdrawn Itaú and OGX.

Brazilian Economic Indicators Published in November Weaker

We see the end of elections as positive, as it will leave a great source of stress behind and, independent to the outcome, differences between the two candidates are likely to have practical effects only in the medium term. The most immediate potential stress that can arise after the elections result is likely the announcement of names in the top positions of the new government.

The appreciation of the Real since the Petrobras capital increase stressed the government and other economic agents until the government decided to increase IOF taxation sequentially, first from 2% to 4% and then to 6%. First indications show stability of the FX, but the government will certainly monitor to see if these measures were sufficient to reach long lasting stability. We foresee further action from the Government should the Real start to appreciate again.

In economic terms, we believe that Brazil’s November indicators, published in November, should be weaker than those published for a long stretch of months. The reason for this view is our expectation for three indicators: 1) retail sales; 2) industrial production and 3) activity index (Central Bank measure that indicates GDP performance and precedes its release). We foresee negative figures for the first two and nearly zero for the third.

Source: Banif-IXE, 01.11.2010

Filed under: BM&FBOVESPA, Brazil, Exchanges, Latin America, News, Services, , , , , , , , ,

Nomura builds Latin American Foreign Exchange Sales and Trading Business

Nomura, the global investment bank, has expanded its Latin American Foreign Exchange coverage under the leadership of David Steck, Managing Director, Nomura Securities International, and newly-appointed Global Head of FX Sales. Liran Blum has been appointed Head of FX and Local Markets Americas Trading and Aloisio Teles has been appointed Head of FX LatAm Trading.

In his newly created position, David Steck will define and implement a global client strategy in FX and strengthen the firm’s global footprint. In the last 13 months Steck and his regional and global partners have launched Nomura’s FX Americas operations, which now employ more than 50 front office staff providing full G10 and Emerging Markets capabilities to a growing client base. Prior to joining Nomura, Steck spent 11 years at Deutsche Bank. Steck reports locally to Peter Hornick, Head of Fixed Income Sales Americas, and globally to Richard Gladwin, Global Head of Foreign Exchange and Commodities.

To build upon Nomura’s success to date in growing the Americas platform, Blum has been appointed Head of FX and Local Markets Americas Trading. Prior to joining Nomura in June 2009, Blum worked for SAC Capital Advisors as a portfolio manager and Lehman Brothers. Blum reports locally to Charlie Spero and Jeff Michaels, Joint Heads of Fixed Income and globally to Richard Gladwin.

To ensure continued progress in building Nomura’s Latin American business, Teles has been appointed Head of FX LatAm Trading. Prior to joining the firm in June 2009, Teles worked for SAC Capital Advisors as a portfolio manager focused on emerging markets. His prior experience also included working at Lehman Brothers and Banco Bozano Simonsen in Rio de Janeiro where he traded LatAm local market instruments. Teles’s extensive LatAm market knowledge, relationships and trading capabilities make him uniquely qualified to lead the effort in expanding Nomura’s local markets trading business.

Nomura now has an 8 person team trading Latin American Foreign Exchange focused on Brazil, Mexico and the Andean countries, supported by 4 salespeople and a 4 person strategy team lead by Tony Volpon, Nomura’s Brazil strategist. Nomura has an extensive Latin American product suite covering the currencies of Brazil, Mexico, Colombia, Chile and Peru. Its products include spot, forward and non-deliverable forwards, vanilla and exotic options, cross currency and interest rate swaps, Brazil on-shore futures, Brazil and Mexico sovereign bonds and structured products.

Source: Mondo Visione, 03.11.2011

Filed under: Brazil, Chile, Colombia, Latin America, Mexico, News, Peru, , , , , , , , , ,

Brazil: Scenario Unchanged – July 2010- IXE BANIF – Monthly Analysis

Focus still on the euro zone

For July, we believe the focus will continue to remain mainly on Europe. Banks in the region, particularly in most of the more fragile PIIGS group (Portugal, Italy, Ireland, Greece and Spain), apart from Italy, have recently had limited access to financial markets and remain dependant on local Central Banks to access cash. This situation on its own is uncomfortable, remaining as a source of tension to a market that remains volatile. We expect volatility to continue in July and still do not see any indication of a trend. This is exactly the same view we had for June and, consequently, our suggested portfolio has changed little. We have withdrawn Drogasil, one of the largest winners; reduced the weight of CSN (from 10 to 5%); increased the weight on Hering (from 5 to 10%) and included B2W. With these alterations, we continue using the Ibovespa weights for the oil, mining, banking and transportation industries, remaining overweight for the retail and utility sectors. Brazil – Monthly Allocation – July 2010

Outlook for the euro zone: uncertain and unequal

The G-20 meetings resulted in the decision to halve deficits by 2013 and start decreasing debts from 2016. However, each country is free to decide on the balance between cuts and economic incentives. In Europe, we are facing a catch 22 situation: everyone agrees on the need for cuts, but most people do not want to implement them for fear of an economic slowdown, as perceptions are that growth is more essential. We believe that if only the feared slowdown occurs in Europe it would have little impact on local economic growth, as exports rather than local demand drive economic growth.

Silver linings to the dark clouds

For the rest of the world, we highlight the USA, China and Brazil. Although recently released economic data in the US came slightly below expectations, it is not indicative of a reversal of the trend towards a slow recovery. A conclusion of the details for the reform in the financial system may take place in July, leaving room for welcomed practical measures. In China, we expect growth to continue unchanged, balancing the still difficult situation of the developed world. In Brazil, we expect inflation data for June to be as low as that of May. We also see a transition time for GDP estimates, with a continued gathering of data to support either a revision or confirmation of the current 2H10 and 2011 expectations, which are currently good.

Source: IXE BANIF, 02.07.2010

Filed under: BM&FBOVESPA, Brazil, Exchanges, Latin America, Risk Management, , , , , , , , , , ,

Brazil: Up but volatile – March 2010- IXE-BANIF Monthly Analysis

Strong domestic economy

The debate in developed nations is about the health of their public finance and how this will affect growth in the future. In Brazil the concern is the same, but it is at a different stage. While in some developed countries the debt is at its record high and government deficits are reaching worrying levels, in Brazil public accounts indicate deterioration, but for now they are only clouds in the horizon in a scenario of blue skies for this year and the next. The Brazilian economy is overheated especially in some sectors, and given the low level of past investment, inflation has become an issue (to be resolved in the coming months). In this scenario of a fragile world economic recovery, Brazil and China are clearly trying to avoid bubbles as past stimulus measures were successful. We remain bullish about equities in Brazil, particularly domestic plays, despite knowing that the government will take measures to slow the economic growth. With this in mind we foresee Brazilian stocks moving higher, but not without some volatility.

Ibovespa is a bad indicator

Although we set Ibovespa as the benchmark for this suggested Allocation, we acknowledge it may not be the most adequate index to reflect the Brazilian stock market at the moment. Heavyweight Petrobras has been underperforming the Ibovespa since the government announced the intention to make a capital injection last year. It could reach as much as US$50bn and depending on terms dilutive to minority shareholders. We might be close to have this uncertainty ended and Petrobras could finally trade again based on its fundamentals. Vale, another heavyweight, has also dragged the Ibovespa down this year. Despite an expected increase in prices of iron ore, we feel investors are somewhat skeptical that the world recovery is sustainable and therefore volumes could suffer in the medium term. We already heard of investors willing to swap Vale for Petrobras, but this might only start next month.

Interest rate: no changes in Brazil, US or Europe

COPOM in Brazil will take place on March 17, while the FOMC in US on the 16th and the ECB on the 04th. We believe the market is already factoring in a small interest rate hike in the next COPOM meeting. However, we do not expect any of them (ECB, FOMC or COPOM) to change interest rates in March. Inflation has been high lately in Brazil and at this pace it would lead to a level above the Central Bank’s target for the year (4.5% for 2010). Although the government will do anything at hand to delay an upward trend in interest rate, as recently raised the compulsory rate for bank deposits, we believe it cannot avoid raising the SELIC rate to two digits until YE, from the current 8.75%.

Read full report Brazil – Allocation – March 2010

Source: IXE, Banif, 01.03.2010

Filed under: BM&FBOVESPA, Brazil, Exchanges, Latin America, News, Risk Management, , , , , , , , , , , ,

Brazil: Samba and 4Q09 results ahead- February 2010 Banif- IXE Market Analysis

Bottom up analysis

February is shorter compared with other months and in Brazil the Carnival this year will take place around mid-February, which will decrease the number of working days. We expect the stock market to trade based on companies’ specific factors, such as disclosure of 4Q09 results and less on economic data.  Hence, we set our portfolio on each particular stock catalyst and less concentrated on Vale and Petrobras.

Interest rate: no changes in Brazil or US

Although inflation figures will still indicate the economy is overheated, needing a more austere monetary policy, there will not be a COPOM meeting in February. In US, the FOMC will also not meet this month. Therefore, there will not be any changes in interest rates this month.

Politics: too early to start the campaign

While we expect presidential candidates (Dilma Rousseff and Jose Serra) to work behind the scenes, we should not see any major political move before Carnival in Brazil. Candidates should resign their current political posts until April’10 and validate their candidacies inside their parties. Only after that, the political debate will effectively start and volatility in the stock market will increase, mainly for those related to regulated sectors and companies controlled by the government. We would expect this volatility to decrease by mid-year, given FIFA’s World Soccer Cup and eventually increase again before elections, which will take place in October.

4Q09 results: weak export figures/favorable domestic sales

In general, we expect weak sales from exporters, on a YoY comparison, given lower volumes and despite some price recovery, they were not fully restored. In the domestic side, sales and margins should have a nice improvement compared with 4Q08. In our suggested portfolio we took into account the expected results, particularly for those to report in February and also compared with the stock performance to access whether they are or not priced in.

Risks come from abroad

Risk aversion has increased at global level and the Brazilian real lost ground in the past days. The devaluation is more connected to the dollar strength rather than specific factors that lead the real to depreciate. In any case, if we continue to see this devaluation in the coming weeks, investors may rearrange their portfolio and buy more exporters (selling consumer staples and homebuilders), given the negative effect the currency devaluation will have in inflation and the ensuing impact in interest rates and the population’s purchasing power.

Read complet report and analysis here Banif-IXE: Allocation Brazil – February 2010

Source: Banif-IXE, 01.02.2010

Filed under: BM&FBOVESPA, Brazil, Exchanges, Latin America, News, , , , , , , , , , , , ,

Brazil:Where one goes all follow December 2009 IXE-BANIF Market Analysis

We are now in the last month of the year and, after a doubtful start, in the midst of the crisis hurricane, it should end on a positive note, with a more than 70% appreciation. Therefore, December should not be a month of risk. Investors will attempt to guarantee the gains so far realized.

Brazil – Monthly Allocation – December 2009 Report

A new scare marked the end of November. However, this only gave investors a chance to take a breather. Dubai’s debts do not seem to cause much of a worry. The main creditor is the UK, with the exposure of other regions, including the USA, being less than 15%.

Economic data releases few and far between this month

Little economic data will come out this month, both in the USA and Brazil. In Brazil, investors look for a strong recovery in GDP for 3Q09, with release of figures expected for December 10 and with the Copom minutes being released on the 17. In the USA, investors expect the release of sales figures for “Black Friday”, that should indicate the strength (or weakness) of Christmas Sales. In addition, we will have one more FOMC meeting on the 16 and 3Q09 GDP on the 22.

The growth of the US economy still depends very much on the resources injected into it by the Federal Government. Inflation is not a problem, and should not be for some months. Therefore, the FED should maintain interest rates at their present level, at least for the next six months.

Things seem to be getting better. The Real Estate sector, although still weak, shows various signs of recovery. The truth is that the panic generated by Dubai is from this sector. On the other hand, as it is a concentrated crisis, it is hardly likely to spread to other regions.

The pre-salt area becoming a reality

The pre-salt area still awaits the approval of Law 9541/09, but Petrobras is already taking steps to prepare for its implementation. One step is the creation of a Minorities Commission to follow the development of the “transfer of rights with compensation” process through which the Government capitalizes Petrobras using oil reserves. Another is the acceptance of Federal Public Debt bonds by minority shareholders’ for the proposed Petrobras capital increase.

Performing the same as the Ibovespa guarantees the year’s result

This month, we opted to have a portfolio that balances well with the Ibovespa as we believe that the result for the year is a given and thus expect the last month of 2009 to be flat. Therefore, we aimed at maintaining our portfolio gains in 2009 above 70%.

Outperforming the Ibovespa – Recommended Portfolio (Long)

Share – Catalysts/Fundamentals

BPNM4 – Rumors of the possible sale increase in personal credit during Christmas

BRTO4 – Most discounted share in the Oi Group

BTOW3 – Internet Christmas sales should grow strongly

CSNA3 – Sales to the domestic market continue to increase

ELPL6 – 1Q10 dividend should yield at least 8%

EQTL3 – A stock with low liquidity that should be less volatile

ITUB4 – Continued increase in credit to all sectors

KLBN4 – Cardboard price increases should result in a strong 4Q09

MMXM3 – Sale of a stake in the company should be above investor expectations

PCAR5 – Food and non-food Christmas sales

PETR4 – increase in daily volume

SUZB5 –Cardboard and pulp price increases

TLPP4 – Defensive stock that should announce dividend payout in December

VALE5 – Price negotiations start in December with expectations of a 10% increase

Short suggestion for December

NETC4 – incrase in competition with the sale of GVT to Vivendi

Source: IXE – BANIF, 01.12.2009

Filed under: BM&FBOVESPA, Brazil, Exchanges, Latin America, News, , , , , , , , , , ,

HSBC Brazil Fund outperforms Asia Pacific Rivals on Economic Outlook, Currency

Nov. 18 (Bloomberg) — HSBC Global Asset Management’s Japan-based mutual fund investing in Brazilian stocks has beaten its biggest peers this year in the Asia-Pacific region as the stronger real boosted returns from bets on JBS SA and Duratex SA.

The 224.36 billion-yen ($2.5 billion) HSBC Brazil Open (Japan) fund has risen 170 percent in 2009, the steepest gain among 2,361 funds tracked by Bloomberg and based in the Asia- Pacific region with assets of at least $100 million.

Brazil’s Bovespa stock index has surged 80 percent this year, buoyed by the outlook for economic growth and by winning bids to host the 2014 World Cup soccer matches and 2016 Olympics. Further boosting returns at HSBC’s yen-denominated fund is the real’s 33 percent appreciation against the Japanese currency. Adjusted into yen, the Bovespa has soared 139 percent this year, the most of 89 benchmarks worldwide tracked by Bloomberg.

“Brazil’s economy is showing a strong recovery, led by domestic demand,” Pedro A B Bastos, chief executive officer of HSBC Global Asset Management in Brazil, said by e-mail. “With the 2014 World Cup and 2016 Olympic Games in Rio de Janeiro, interest in investment into Brazil has grown significantly.”

The country’s economy will expand 3.5 percent next year after a 0.7 percent contraction this year, according to forecasts published Oct. 1 by the International Monetary Fund. The real has strengthened against most currencies this year on the prospects for growth, increased commodity prices, rising stocks and an improved credit outlook.

Brazilian Stock Market

The Bovespa’s percentage gain in yen terms this year compares with increases of 25 percent for the MSCI World Index, 83 percent for the Sensitive Index in India, 78 percent for the Shanghai Composite Index in China and 130 percent for Russia’s dollar-denominated RTS Index.

JBS SA, the world’s largest beef producer and the HSBC fund’s largest holding, has climbed 95 percent this year.

“As emerging economies grow, diets change and more people eat meat, so demand is growing outside of Brazil too,” said Kenji Yamamoto, corporate director at HSBC Global Asset in Tokyo.

Duratex SA, a maker of bathroom fittings and wood panels that has gained 273 percent this year, and BR Malls Participacoes SA, Brazil’s biggest owner of shopping malls, with a 154 percent increase this year, are also among the HSBC fund’s top holdings, Bastos said.

Source: Bloomberg,18.11.2009

Filed under: Asia, BM&FBOVESPA, Brazil, Exchanges, Japan, Latin America, News, Services, Wealth Management, , , , , , , , , , , ,

Brazil imposes 2% tax on foreign capital inflow for Equities and Fixed Income

SAO PAULO (Dow Jones)–Brazil will impose a 2% tax on foreign capital inflows toward equities and fixed-income investments in an effort to slow the ongoing appreciation of the country’s currency, the real, Brazilian Finance Minister Guido Mantega said Monday.

Mantega said the government plans to levy the country’s IOF Financial Operations Tax on incoming foreign investment beginning Tuesday.

The Minister said the tax was not aimed at raising government tax revenues, but curbing excess capital inflows that have pushed up the value of the real and hurt the country’s foreign trade balance.

Brazil’s currency has appreciated more than 35% against the dollar so far this year under the impact of a faster-than-hoped for local economic recovery and increasing investor appetite for Brazilian assets.

Source: DowJones News Wire, 19.10.2009

News Summary:

SAO PAULO, Oct 19 (Reuters) – Brazil unveiled plans on Monday to tax capital inflows heading to fixed-income investments and stocks in a bid to prevent the country’s hard-charging currency from strengthening further. Finance Minister Guido Mantega said the government will charge a 2 percent financial transactions tax on foreign investment flows to Brazil’s stock market and local fixed-income securities such as government bonds. [1] The tax, which will take effect on Tuesday, will be charged only once, when the capital enters the country, Mantega said. He stressed that foreign direct investment would continue to flow freely into Brazil, untaxed. “Our concern is with excessive speculative investments, short-term capital that could cause a bubble,” Mantega told reporters in Sao Paulo, where he outlined the measure after meeting with President Luiz Inacio Lula da Silva, who had initially opposed the tax. “Nothing changes with respect to foreign direct investment,” he added.[1]

SAO PAULO (Dow Jones)–The Brazilian real closed slightly weaker against the U.S. dollar Monday on market worries about possible tax changes that might diminish foreign investment inflows.[2] Unlike in the past, however, foreign capital flocking to Brazilian stocks will also be taxed. The measure aims to put the brakes on Brazil’s currency, the real, which has gained a whopping 36 percent against the U.S. dollar so far this year as foreign investors have shifted money to high-yielding emerging markets. Brazil’s stock market has also been a magnet for foreign investment this year, helping lift the benchmark Bovespa index 79 percent since the start of the year.[1] The rate of the levy — 2 percent — was larger than expected, which could have a negative impact on the market in the near term, RBC Capital Markets said in a research note. It is unclear if the measure will ultimately staunch the flood of foreign money into Brazil, whose robust economy and red-hot capital markets have made it a favorite with investors around the globe. Economists note that the real’s surge this year is partly the result of a weaker U.S. dollar globally, a trend that is beyond the control of Brazilian policymakers.[1]

Direct investment in the productive economy will not be affected. The move, announced shortly before local markets closed on Monday evening, is designed to slow the appreciation of Brazil”’s currency, the real, which has gained 36 per cent against the U.S. dollar this year.[3]

Brazil’s real, among the world’s fastest-climbing currencies, dipped against the dollar Monday on investor expectation that the levy would be imposed. The real has gained about 35% against the dollar this year.[4]

Analysts expect solid demand for the local notes, given recent optimism surrounding Latin America’s largest economy. Brazil emerged from recession in the second quarter of this year, with 1.9 percent growth, making it one of the first countries to come out of the global financial crisis.[5] Currently, only non-financial companies in Brazil are allowed to issue the notes, known locally as debentures. “We are likely to authorize the issuance of local notes already this week,” the source told Reuters. The government expects this will help increase the availability of credit, reduce banking spreads and reduce the need for banks to tap markets abroad, the source added.[5] BRASILIA, Oct 19 (Reuters) – Brazil’s government is likely to authorize banks to issue real-denominated domestic debt to raise capital as early as this week, a source at the Finance Ministry told Reuters on Monday.[5]

Mantega said the central bank would keep buying dollars on the spot market to bolster international reserves, which have surged to an all-time high of $232.3 billion. Some economists said the government could have adopted other measures to halt the real’s appreciation, such as cutting public spending and lowering import tariffs on capital goods, which would increase demand for U.S. dollars.[1] Brazilian Finance Minister Guido Mantega said Monday the government plans to levy an “IOF” Financial Operations Tax on incoming foreign investment beginning Tuesday.[6] SAO PAULO (Dow Jones)–Brazil will impose a 2% tax on foreign capital inflows toward equities and fixed-income investments in an effort to slow the ongoing appreciation of.[7] SAO PAULO (Dow Jones)–Brazil is imposing a new tax on foreign portfolio inflows into fixed-income and surging equities markets in a bid to cool the red-hot appreciation of the country’s currency, the real.[6]

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“With our currency overvalued, we’re going to export less and we’re going to be less competitive,” Mantega said, noting that 25 percent of Brazil’s industrial output is shipped to foreign markets. [1]

Asked about the measure in Sao Paulo, Finance Minister Guido Mantega confirmed the government was studying the move and said it would be announced “once it is mature.”[5]

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To view or change all of your email settings, visit the Email Setup Center ]] Email Setup Center. [7] The levy resurrects a financial transactions tax on fixed-income investments the government scrapped last October, when the global credit crisis took a turn for the worse and investment flows dried up.[1] “We’ll continue to encourage foreign investment. Foreign investors are welcome, and they’ll continue to come.”[1] The move aims to curb “excess capital inflows” that have pushed up the value of the real, hurt the country’s foreign trade balance and threatened local jobs.[6] The measure would increase the options banks have to raise funds in domestic markets and in local currency, avoiding the risk of a fluctuating exchange rate, the source said on condition of anonymity because the measure has yet to be unveiled.[5]


1. UPDATE 3-Brazil taxes capital inflows to brake real’s surge
2. Brazil Real Closes Weaker On Possible Tax Changes –
3. / Americas – Brazil imposes 2% on capital inflows
4. Brazil’s Foreign Levy Aims to Cool Hot Real –
5. UPDATE 3-Brazil to allow banks to sell local notes – source | Reuters
6. UPDATE:Brazil Slaps Tax On Fund Inflows To Check Real’s Gains –
7. Brazil’s Mantega: Govt To Levy 2% Tax On Foreign Investment –
8. IMF Official: Inflow Taxes Like Brazil’s Tend To Be Porous –

Filed under: BM&FBOVESPA, Brazil, Exchanges, Latin America, News, , , , , , , , , ,

Brazil: Softly, softly, the best approach – October 2009 IXE-Banif Market Analysis

The continued rally of the markets is both surprising and alarming. It assumes a recovery of the economy that the indicators do not confirm. Consequently, there is a fear of profit taking, and that this will be stronger than originally estimated. The uncertainty of when it will take place, if in October or only next year, is the dilemma facing investors.

Download: Brazil – Monthly allocation – October 2009
Market liquidity continues to be excessive. We believe that it is this large volume of resources and not the feeling that the worst is over, which is boosting markets. While the flow of resources into the real economy does not stop, a stronger profit taking becomes improbable. In Brazil, the government has started taking steps to reduce the flow. It has modified the bases for reserve requirements slightly and is gradually increasing the IPI to reduce the benefit from buying vehicles and white line goods.

In Brazil, from here onwards, the elections start to gain an increasing importance. October starts with the President of the Central Bank siding with the largest national party, PMDB. All he does not say is if he will be a candidate, leaving the Central Bank in March, or if he leaves, as will President Lula, only at the end of his mandate that goes to December 31, 2010.
We must not forget the pre-salt regulations currently under discussion at Congress. The tendency is for this to benefit the national market, which may or may not result in Brazil gaining more resources.

The dreamed for investment grade
The last classification agency approval needed to increase Brazil’s investment grade has finally done so: Moody’s has also classified Brazil at first-degree investment grade. This should bring resources to the Stock Market from foreign investors that can only invest in countries that have the seal given by the three main agencies. However, this should not happen in the short term, seeing as these new potential investors must study opportunities and compare them to others in the world.

Shares from the domestic economy should outperform
The certainty that at some point the Brazilian market should cash in the substantial profits gained this year causes us to suggest a continued conservative stance for our October portfolio. After all, the Ibovespa has gained 64% this year. We continue to prefer names linked to the development of the internal economy and good dividend payers. However, we have also kept our bets on the mining and steel industry due to potential gains, mainly from better sales volumes.

Outperforming the Ibovespa
Share – Catalyst/Fundamental

BRTP4 – highest upside potential in the sector
CPLE6 – Defensive in a month where we expect an increase in volatility
ITUB4 – 3Q09 result should show synergy gains
JBSS3 –demand/price recovery in the, private placement e M&A
LAME4 – Sales on ‘Children’s Day’ and during the Christmas period
LIGT3 – Discounted in relation to its peers
MMXM3 – Expectation Wuhun Iron Steel will confirm its offer
MRFG3 – demand/price recovery; M&A and distribution agreements
PCAR5 – Good representative of the internal market, operating in retail and food
TLPP4 – Announcement in October o a high dividend yield for the year 2009
USIM5 – 3Q09 result should report margin expansion
VALE5 – Increased sales of ore and pellets to the European market

Source: Banif-IXE, 01.10.2009

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Latin America Rebound to Be ‘Remarkably Strong,’ Barclays Says

Latin America’s economic recovery will be “remarkably strong,” bolstering currencies and spurring interest rate increases in 2010, Barclays Plc said.

“We expect a strong 2010,” Barclays analysts wrote in the bank’s emerging-markets quarterly report dated yesterday. “Robust growth prospects in Latin America bode well for capital inflows, equity prices and FX appreciation.”

The Brazilian real and the Mexico peso offer the most potential “to trade the region’s rebound,” the analysts wrote. They raised their estimate for Latin America growth in 2010 to 4.4 percent from 3.6 percent.

Barclays said the global economic rebound will be “sharper and last longer than we previously anticipated,” with all the regions contributing to expansion. The growth forecasts for the Europe, Middle East and Africa region, known as EMEA, was increased to 2.9 percent from 1.4 percent expected in the previous quarterly report.

Source: Bloomberg, 23.09.2009

Filed under: Brazil, Exchanges, Latin America, Mexico, News, , , , , , , ,