Brazil is on the cusp of attaining full investment grade status, opening up new opportunities for investors in emerging markets.
In recent weeks, the nation has enjoyed a number of currency upgrades by ratings agencies Standard & Poor’s (S&P) and Fitch.
A further upgrade to the rating would place Brazil alongside the other so-called BRIC countries of India, Russia and China which have all recently achieved full investment grade status.
Luiz Ribiero, manager of the HSBC GIF Brazil Equity fund, predicts Brazil will achieve the status by the end of 2008 and says investment opportunities in Brazil are likely to continue to improve.
Ribiero, who works for Halbis, the asset management arm of the HSBC Group, says: “The ratings upgrades were driven by a steady improvement in Brazil’s macro economic fundamentals that had led to the continued decline in Brazil’s fiscal and external vulnerabilities.
“Buoyed by record commodity exports and foreign investment in Brazil’s bond and equity markets, foreign reserves have reached a record high of US$122 bn. Meanwhile, President Luiz Inacio Lula da Silva remains committed to further reducing these vulnerabilities during his second term in office.”
Ribeiro adds economic fundamentals should also continue to improve.
“Inflation is now under control with 2006 year end inflation of 3.1% being at the lower end of the inflation-targeting band,” he says.
“Interest rates continue to fall and are expected to decline further while credit availability has improved and real salaries have increased.
“Provided that there is no major slowdown in the global economy and that the improvements we have seen to date continue, Brazil should gain its “full investment grade” status by the end of 2008.”
S&P put Brazil on the brink of “full investment grade” status on 16 May 2007 when it raised its long-term foreign sovereign credit rating by one notch to BB+.
At the same time, S&P also raised its less closely followed long-term local currency sovereign credit rating by two notches to BBB, meaning that Brazil has, in part, attained investment grade status.
The S&P upgrades follow similar upgrades from Fitch, which raised Brazil’s foreign and local currency credit ratings to BB+ on 10 May 2007.
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