• Home
•  » Property Investment News

Real Brazilian Investment

Brazilian investment is heavily dependent on the exchange rate. With global economic confidence oscillating widely over the last month, emerging market currencies have experienced more than their fair share of ups and downs. But in Brazil's case, the outlook remains solid.

Like currencies in most emerging markets, the Brazilian real saw big fluctuations last month. After ending July on a 12-year high against the dollar (R$1.54), the real fell by 15.5% in mid-September to reach a rate of R$1.86. Reasons behind the Brazilian real's roller-coaster ride are multiple and almost all of them are direct results of the latest world financial outlook.

Deciding Factors

At the start of this year, the Brazilian real was boosted by the massive inflow of dollar investment in Brazil, attracted to high interest rates. This inflow continued until the summer when the first signs of lack of recovery in developed markets became apparent. As one piece of bad news followed another, investors began to withdraw their money from emerging market currencies.

In the words of the Financial Times blog Beyond Brics, "investors were spooked by the eurozone's woes". As a result, most currencies fell as investors flocked to US Treasury Bonds and Swiss francs, widely considered to be the safest investment opportunities. A financial expert interviewed in Istoe Dinheiro said that "all currencies are losing value against the dollar as funds rush to the so-called safety nets".

For the Brazilian Finance Minister Guido Mantega, the recent drop in the value of the Brazilian real "reflects aversion to risk that is perceived as a result of not solving European problems". Other market observers including Obelisk International agree with this analysis. "The Brazilian real, along with other emerging market currencies, is clearly paying the price for financial uncertainty in Europe," says Gary Hardacre, CEO of Obelisk International, "and September's fluctuations reflect this rather than anything related to Brazil or its economy."

Solid Future

The Brazilian economy has so far been unaffected by the fluctuations in the exchange rate since it takes several months for industry and business to experience changes. In any case, the majority of experts believe the Brazilian real is set to end the year steadily and then maintain a stable rate for the near future.

The most recent Focus Bulletin issued by the Central Bank of Brazil estimates that the Brazilian real will close the year at a rate of R$1.65 against the US dollar, an identical rate to January this year. For Beyond Brics, "foreign direct investment in Brazil and portfolio fund inflows remain solid, indicating that no disorderly unwinding of Brazilian real positions is underway."

The Central Bank has just released figures for dollar inflows into Brazil for the first nine months of this year. From January to September, dollar inflow totalled US$30.4 billion. This together with the trading of US$37.9 billion is almost quadruple the amount registered during the same period in 2010. September dollar inflows - when the Brazilian real fell by 15.5% - came to US$8.5 billion, 38% less than last year but the figure clearly shows the confidence still felt in Brazilian investment.

Obelisk International firmly believes in the long-term attraction of Brazilian investments. "Brazil's economy is so strong with so much potential for expansion; we see investor confidence growing still further over the next 12 months," says Mr Hardacre, "which should lead to more confidence in the currency meaning that European economic instability will have less effect."

« Back

Other Property Investment News