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Investment Funds Move into Brazil

Investment in Brazil is undoubtedly one of the up and coming trends for this year. Along with Brazil real estate – part of a growing number of investment portfolios – Brazil commodities and domestic stocks are also increasingly popular options.

To date, few institutional funds have invested in shares in domestic companies in Brazil. The news that financial services provider, JP Morgan is launching a new investment fund in Brazil shows that the tide is turning. It also gives an indication of the investment interest Brazil is generating.

JP Morgan’s London-listed Brazil Investment Trust will have an initial capital of £50 million, which will invest in between 25 and 50 companies in Brazil. The fund will be performance benchmarked against the MSCI Brazil 10/40.

The Brazil market index is dominated by two companies, Petrobras – Brazil’s premium energy company, and the mining giant, Vale. Between them, Petrobras and Vale make up 40% of Brazil’s market index. However, JP Morgan’s Trust intends to invest in companies with small and medium market capitalisation (between US$300 million and US$10 billion).

Latin America has not traditionally formed part of investment funds. Many investors previously perceived the continent as volatile with chronic debt problems. Reality is now very different. Countries like Brazil and Chile have steadfast democracies and strong economies. In terms of debt, Brazil became a net creditor to the IMF last year.

JP Morgan believes that “Brazil has historically been the poor relation to other emerging markets”, but that now it represents a tremendous investment opportunity. For JP Morgan, reasons to invest in Brazil are compelling. One of the fundamentals behind this potential is the strong domestic market.

Brazil has a booming consumer market. As Brazilians’ incomes rise so do consumer spending. White goods, cars and property are all experiencing sharp sales hikes. Lowest-ever interest rates mean that credit for mortgages and consumer spending have increased massively over the last 18 months.

Brazil has the additional attraction of the forthcoming 2014 World Cup and 2016 Olympic Games. This tandem of world-class sporting events will encourage still further domestic investment in Brazil.

One of the managers of the new JP Morgan Brazil Fund, Sebastian Luparia believes that since Brazil achieved investment grade status in April 2008, it has left the inflationary boom-bust cycle behind. “2009 stress tested this when the country experienced a normal recession with a swift recovery,” he says.

For Obelisk, the launch of this new fund confirms the huge investment potential in Brazil. Our own research and data from our associates in Brazil has long highlighted that Brazil is currently one of the best investment options available. As Brazil’s economy grows over the next decade, we believe that many more high-profile institutions will be following suit and investing in Brazil.

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