Peres Brazil olympics 311.
(photo credit: Genie Agency)
If I were to ask you to name a very populous country with strong economic growth
and a growing middle class, chances are you would answer China or India. While
China and India are correct answers, there is another country that also fits the
criteria, and that is Brazil.
Now when we think of Brazil we think of a
global soccer (football) power, the party atmosphere of Rio de Janeiro and the
Amazon. We may also think of crime and poverty. What doesn’t
usually pop to mind is that Brazil is quickly emerging as a global economic
With the seventh-largest economy and growing quickly, investors
looking for long term potential growth investments in international markets may
want to take a hard look at Brazil. In addition, the upcoming World Cup and
Olympics to be hosted by Brazil in the next five years may prove to be a
catalyst for the market.
In many instances an upcoming event of such
magnitude has proved to be the engine for stock-market appreciation. Obviously
just because it happened in the past is no indication that it will happen this
time around, but it’s something to keep an eye on.
I recently had the
fortune to interview Seth Zalkin, cofounder and managing partner at Astor Group,
a global investmentbanking advisory firm that does a lot of work in Brazil.
Zalkin is an expert in the Brazilian economy and really gives a thorough look at
the market. Here are some excerpts from the interview: Can you give an overall
picture of the Brazilian economy?
Zalkin: Notwithstanding concerns about
inflation, Brazil’s fundamentals and its long-term outlook both remain strong.
The job market is growing, and that is supporting a significant transition from
a lowwage country to a country with a voracious middle class.
next 18 months, growth should stay strong and the actual GDP should remain above
potential output at somewhere around 4.0 percent this year and slightly higher
in 2012. Although the Bovespa has the potential to outperform developed
exchanges over the long term, the broad-based uptrend experienced in the last
couple of years is unlikely to return.
While Brazil faces a number of
fiscal challenges, and its infrastructure demands urgent attention, the country
is like a winding mountain road: danger exists around every corner, but with a
stable political climate it is slowly getting to its long-awaited
How are inflation worries playing into the story?
Brazil’s persistent inflation concerns continued in July as the 12-month
inflation rate reached its highest level in six years. But concerns about global
economic growth and expectations for a retreat in prices later this year will
prevent the central bank from raising interest rates when it next meets on
August 31 as it had recently been expected to do.
While Brazil’s central
bank targets inflation of 4.5%, plus or minus two percentage points, consumer
prices rose 6.9% in the 12 months through July, the fastest pace since
2005. Inflation is expected to peak and then start to trend down by the
end of the year.
While interest-rate hikes and other measures implemented
earlier this year may not be enough to bring inflation down to its target in the
next year, the stumbling global economy may provide a helping hand. A decrease
in the commodity market, lower fuel prices and weakening global demand are all
likely to relieve inflationary pressure and even give room for policy makers to
cut interest rates if the economy continues to decelerate.
resists these external factors and continues to spiral out of control, the
government will be forced to raise interest rates yet again and risk choking off
any significant economic growth.How do you think the Olympics and World
cup will impact the economy?
Zalkin: The World Cup and Olympics will bring
significant economic and structural benefits to Brazil and will also advance the
country’s planning and infrastructure network. Increased investment in
airports, the power grid, railways, roads and other transportation, hotels,
telecommunications and environmental projects will all have a long-term impact
on the Brazil economy that will transcend the direct impact of the actual
While this is a very brief synopsis of the Brazilian economy,
investors looking for potential growth markets may want to research the
Brazilian market. Then speak with your financial adviser to see if an investment
in Brazil fits into your long-term asset allocation and risk
email@example.com Aaron Katsman is a licensed
financial adviser in Israel and the United States who helps people with US