Emerging Markets: Don't Overlook Brazil

Last week, Standard & Poor’s upgraded Brazil’s sovereign credit, to only one step below investment grade. Brazil is benefiting from strong exports,declining interest rates and a current account surplus. In response, the Brazilian real exceeded $0.50 to the doller for the first time since 2000. It has doubled against the dollar since its drop in October 2002, when the leftwing Luiz Inacio Lula da Silva became president. According to JP Morgan, its bonds now trade at a yield of only 140 basis points above Treasuries. This yield is the lowest on record and far below the 2,400 basis point spread when Lula was elected. Brazil’s benchmark Bovespa index has gained 1,146% in dollar terms since da Silva was elected.

Luiz Ribeiro, manager of the world's largest actively managed Brazilian equity mutual fund, the US HSBC GIF Brazil Equity fund($1.2 billion), has predicted that all three ratings agencies will classify Brazil as investment grade by the end of 2008. Brazil's growth is expected to remain strong as homebuilding takes off, retail sales expand and infrastructure improvements gain steam. Brazil is one of the countries comprising BRIC, a group of the fastest growing emerging markets. BRIC is made up of Brazil, Russia, India, and China.