August 2009
The Bovespa Index continued to rise to its highest level in 11 months with growing confidence that the effects of the global recession wear having less effect on its economy.  Construction companies Rossi Residencial SA and Rossi Residencial climbed 6 and 6.4% respectively.  Banco Bradesco, the second largest non-government back in Brazil, climbed 2 percent with profits reaching 2.3 billions reals in the second quarter (from 2 billion reals a year earlier).  The country’s total outstanding bank loans rose 1.5 percent to 1.33 trillion reais in the month.  According to Chief Executive Officer, Luiz Carlos Trabuco Cappi, credit operations are likely to increase from 5 to 20 percent in 2010.     Morgan Stanley revised its forecast for Brazil’s growth in 2010 to 3.5 percent (from 2.5 percent).  Mark Mobius, executive chairman of Templeton Asset Management stated at the time: “The banking sector in Brazil is a good way to obtain exposure to the growing consumer market.  Also, those banks have had good experience in handling difficult situations such as the past hyperinflation.”  However, the debate over insufficient lending levels continued with Brazil’s Finance Minister, Guido Mantega, accusing private banks of putting profits before the economy and said they should lower borrowing costs or risk losing market share to Banco do Brasil (the state run institution).  ‘Febraban’ the trade group representing Brazilian banks refused to comment yet Roberto Setubal, Itau Unibanco’s Chief Executive commented public banks were sacrificing returns by lowering loan rates at such a fast pace:  ”The rates that are being charged are not sustainable in many cases, they are too low to give a return on investments.” Banco do Brasil’s Chief Executive Aldemir Bendine took exception to Setubal’s comments, saying on Thursday the bank loan rates were “perfectly sustainable” which was supported by evidence Banco do Brasil’s default rates were 130 basis points below Bradesco’s and 210 basis points below Itau Unibanco’s.  At the Banco Brasil’s quarterly news conference, Chief Financial Officer stated: “the view that expanding credit offerings would compromise the quality of the portfolio was completely false.”  Their figures were supported by Serasa Experian which pointed to a 11% month-on-month drop in bounced cheques.
By mid-month the real continued to rise against the US dollar (with performance strengthening 27 percent on the year).   Brazil’s announced the further purchase U.S. dollars in the currency market to stem the appreciation of the real as a short term strategy.  This, in turn, pushed Brazil’s international reserves to $212.6 billion (from $201.3 billion in April.  On the lowest historical SELIC interest rate, President Lula stated: “It’s desirable and possible to cut further.”  Unemployment figures increased slightly to 8.1% which was considered to be a good post-recession norm from Brazil (under current methodology, Brazilian unemployment was never lower than 7.4%).  According to Carlos Lupi, Employment Minster: “Inventories are depleted and companies have realised the crisis wasn’t as strong as expected, so they are rehiring.”
The Getulio Vargas Foundation estimated that the country’s GDP would grow between 4 and 6 percent in 2010 stating: I believe the year of 2010 will be very positive for Brazilians. The economy will grow, the inflation will be low, and the local currency Real will likely appreciate against the U.S. dollar. The appreciation is good news for Brazilian consumers, as it means they can buy cheaper imported product.”  However, the organisation also pointed to the negative impact of an appreciating real for the manufacturing sector which will face growing competition from cheaper imports.  The state development bank – BNDES – stated they expected the economy to expand by close to 5 per cent in 2010.  In other news, ‘Brookfield’ the North American asset management company raised £5bn to invest in Brazilian real estate back investments (amongst other countries chosen).
September 2009
The Bovespa climbed for the third month in a row as commodity prices jumped and banks, homebuilders and retailers rallied on rebounding loan growth.  Homebuilders gains included Rossi Residencial growing 2.6 percent on the month and Gafisa (Brazil’s second biggest homebuilder) climbing 3.4 percent.  Both Rossi and Cyrela Brazil Realty are among companies that have said they plan to sell stock in São Paulo.
A ‘Valor Economico’ report published by the Central Bank President, Henrique Meirelles, said companies should invest to prepare for growth and those that waited for ‘more evidence’ may lose market share.  He further stressed that it is ‘not the time to lower our guard’ and the government policies that were put in place were working and will be vigilantly monitored and maintained (whilst continuing to monitor reserves).  According to Guilherme Sand, of the Solidus Brokerage, at the time: “There’s been a succession of good news about the economy this week which has a lot to do with low rates here and abroad.”   The real gained 30 percent in 2009 and was the best performer against the dollar among 26 emerging market currencies monitored by Bloomberg as the economy continued to attract foreign investments and boosted export revenues.  Banco Bradesco and Banco do Brasil both increased 2.2 percent and Itau Unibanco rose 2.1 percent.  Loan volumes also increased with Banco Bradesco increased consumer and corporate loans to 50 billion reais (an increase of 19 percent).  Barclays Capital Analyst Robert Attuch noted: “The evolution of lending terms is promising,” Attuch wrote. “We expect loan growth to recover into 2010, as lower loan loss provisioning should help support the bottom line for the banks we cover.”  With this came the news that delinquency rates on loans were continuing to fall, underscoring the impact of record low borrowing costs.  Central Bank President Henrique Meirelles stated that stated the growth is an opportunity for credit expansion yet it was also important to have to be a “healthy” system “without the creation of bubbles or situations that could generate problems in the future.”
Meirlelles also stated that the risks for compliance with official inflation targets have diminished and the bank would continue to meet the 4.5% IPCA consumer price rate, stating: “I can guarantee that the central bank will continue working so that inflation remains in line with the trajectory of targets.”  The central bank raised its projections for 2010 IPCA consumer price inflation to 4.4%.  He also discarded the possibilities that rising government expenditure in the year ahead could push inflation inextricably stating: “the projections take into account a broad group of information, which includes all the stimulus, monetary and fiscal, injected into the economy in recent months, as well as hypotheses regarding administered prices and the evolution of the exchange rate.” He did point that their projection models made the assumption that the government maintain the budget surplus targets in 2009 and 2010:  ”The working hypotheses on fiscal policy presuppose the compliance with primary surplus targets of 2.5% of gross domestic product in 2009 and 3.3% of GDP in 2010, with adjustments announced by the government.”
The Instituto Brasileiro de Geografia e Estatística (IBGE) announced that the National Index of Consumer Prices increased 0.24% month-on-month, faster than the 0.15% growth of the previous month and 4.34% on the previous year.  The economy added 252,617 payroll jobs (the eight monthly increase and a total of 932,651 in 2009) mainly in the manufacturing and housing industries.  The  Getulio Vargas Foundation (FGV) revealed that the Consumer Confidence Index hit 111 in September  – confirming that Brazilians are more optimistic about the country’s economy in the short term and the best figure since the onset of the global recession.  19.1 percent reported a good economic situation for their families – an increase from 18.6 percent in August.  Those who said their economic situation was bad marginally decreased to 13.5% (from 13.7% in August).
Brazil was awarded a place in the eyes of leading rating agencies through being ungraded to investment grade status (Baa3) by Moody’s.  The organisation is the last of the three main rating agencies to increase Brazil’s position and signalled that it could raise the country’s rating further by putting on a positive outlook.  According to Mauro Leos, Moody’s regional credit officer for Latin America: “Moody’s believes the chances that Brazil will stay on a multi-year path of improved creditworthiness are reasonably high. For this reason, we have assigned a positive outlook to Brazil’s sovereign ratings.”  Guido Mantega, the Finance Minister, set a target of 4 percent growth figure for 2010 which he said is achievable.  It was also widely reported that the economy showed no signs of over-heating with pay rises increasing at modest levels.  Consumers who put their buying decisions on hold were now returning to the market as perceptions of market improvement prevailed.  Economists did point to the possibility of increasing the SELIC interest rate in line with increased demand in the first half of 2010.
In other news, British oil and gas explorer BG Group reported another discover in the Santos region of Brazil (290 km off the coast of São Paulo state) with an estimation of between 1.2 to 2 billion barrels.  Frank Chapman, Chief Executive stated at the time that the new oil: “further extends an outstanding sequence for BG Group and partners … with eight discoveries in three years.”

The Brazil Economy in 2009 for the Real Estate / Land Investor: Quarter 3

August 2009

The Bovespa Index continued to rise to its highest level in 11 months with growing confidence that the effects of the global recession wear having less effect on its economy.  Construction companies Rossi Residencial SA and Cyrela climbed 6 and 6.4% respectively.  Banco Bradesco, the second largest non-government back in Brazil, climbed 2 percent with profits reaching 2.3 billions reais in the second quarter (from 2 billion reais a year earlier).  The country’s total outstanding bank loans rose 1.5 percent to 1.33 trillion reais in the month. According to Chief Executive Officer, Luiz Carlos Trabuco Cappi, credit operations are likely to increase from 5 to 20 percent in 2010.  Morgan Stanley revised its forecast for Brazil’s growth in 2010 to 3.5 percent (from 2.5 percent).  Mark Mobius, executive chairman of Templeton Asset Management stated at the time: “The banking sector in Brazil is a good way to obtain exposure to the growing consumer market.  Also, those banks have had good experience in handling difficult situations such as the past hyperinflation.”  However, the debate over insufficient lending levels continued with Brazil’s Finance Minister, Guido Mantega, accusing private banks of putting profits before the economy and said they should lower borrowing costs or risk losing market share to Banco do Brasil (the state run institution).  ‘Febraban’ the trade group representing Brazilian banks refused to comment yet Roberto Setubal, Itau Unibanco’s Chief Executive, commented public banks were sacrificing returns by lowering loan rates at such a fast pace:  ”The rates that are being charged are not sustainable in many cases, they are too low to give a return on investments.” Banco do Brasil’s Chief Executive, Aldemir Bendine, took exception to Setubal’s comments saying that the bank loan rates were “perfectly sustainable” which was supported by evidence that Banco do Brasil’s default rates were 130 basis points below Bradesco’s and 210 basis points below Itau Unibanco’s.  At the Banco Brasil’s quarterly news conference, Chief Financial Officer stated: “the view that expanding credit offerings would compromise the quality of the portfolio was completely false.”  Their figures were supported by Serasa Experian which pointed to a 11% month-on-month drop in bounced cheques.

By mid-month the real continued to rise against the US dollar (with performance strengthening 27 percent on the year).   Brazil’s announced the further purchase U.S. dollars in the currency market to stem the appreciation of the real as a short term strategy.  This, in turn, pushed Brazil’s international reserves to $212.6 billion (from $201.3 billion in April).  On the lowest historical SELIC interest rate, President Lula stated: “It’s desirable and possible to cut further.”  Unemployment figures increased slightly to 8.1% which was considered to be a good post-recession norm from Brazil (under current methodology, Brazilian unemployment was never lower than 7.4%).  According to Carlos Lupi, Employment Minster: “Inventories are depleted and companies have realised the crisis wasn’t as strong as expected, so they are rehiring.”

The Getulio Vargas Foundation estimated that the country’s GDP would grow between 4 and 6 percent in 2010 stating: “I believe the year of 2010 will be very positive for Brazilians. The economy will grow, the inflation will be low, and the real will likely appreciate against the U.S. dollar. The appreciation is good news for Brazilian consumers, as it means they can buy cheaper imported products.”  However, the organisation also pointed to the negative impact of an appreciating real for the manufacturing sector which will face growing competition from cheaper imports.  The state development bank – BNDES – stated they expected the economy to expand by close to 5 per cent in 2010.  In other news, ‘Brookfield’ the North American asset management company raised £5bn to invest in Brazilian real estate back investments (amongst other countries chosen).

September 2009

The Bovespa climbed for the third month in a row as commodity prices jumped and banks, homebuilders and retailers rallied on rebounding loan growth.  Homebuilders gains included Rossi Residencial growing 2.6 percent on the month and Gafisa (Brazil’s second biggest homebuilder) climbing 3.4 percent.

A ‘Valor Economico’ report published by the Central Bank President, Henrique Meirelles, said companies should invest to prepare for growth and those that waited for ‘more evidence’ may lose market share.  He further stressed that it is ‘not the time to lower our guard’ and the government policies that were put in place were working and will be vigilantly monitored and maintained (whilst continuing to monitor reserves).  According to Guilherme Sand, of the Solidus Brokerage, at the time: “There’s been a succession of good news about the economy this week which has a lot to do with low rates here and abroad.”   The real gained 30 percent in 2009 and was the best performer against the dollar among 26 emerging market currencies monitored by Bloomberg as the economy continued to attract foreign investments and boosted export revenues.  Banco Bradesco and Banco do Brasil both increased 2.2 percent and Itau Unibanco rose 2.1 percent.  Loan volumes also increased with Banco Bradesco increased consumer and corporate loans to 50 billion reais (an increase of 19 percent).  Barclays Capital Analyst Robert Attuch noted: “The evolution of lending terms is promising – we expect loan growth to recover into 2010, as lower loan loss provisioning should help support the bottom line for the banks we cover.”  With this came the news that delinquency rates on loans were continuing to fall, underscoring the impact of record low borrowing costs.  Central Bank President Henrique Meirelles stated that stated the growth is an opportunity for credit expansion yet it was also important to have to be a “healthy” system “without the creation of bubbles or situations that could generate problems in the future.”

Meirlelles also stated that the risks for compliance with official inflation targets have diminished and the bank would continue to meet the 4.5% IPCA consumer price rate, stating: “I can guarantee that the central bank will continue working so that inflation remains in line with the trajectory of targets.”  The central bank raised its projections for 2010 IPCA consumer price inflation to 4.4%.  He also discarded the possibilities that rising government expenditure in the year ahead could push inflation higher stating: “the projections take into account a broad group of information, which includes all the stimulus, monetary and fiscal, injected into the economy in recent months, as well as hypotheses regarding administered prices and the evolution of the exchange rate.” He did point that their projection models made the assumption that the government maintain the budget surplus targets in 2009 and 2010:  ”The working hypotheses on fiscal policy presuppose the compliance with primary surplus targets of 2.5% of gross domestic product in 2009 and 3.3% of GDP in 2010, with adjustments announced by the government.”

The Instituto Brasileiro de Geografia e Estatística (IBGE) announced that the National Index of Consumer Prices increased 0.24% month-on-month, faster than the 0.15% growth of the previous month and 4.34% on the previous year.  The economy added 252,617 payroll jobs (the eight monthly increase and a total of 932,651 in 2009) mainly in the manufacturing and housing industries.  The  Getulio Vargas Foundation (FGV) revealed that the Consumer Confidence Index hit 111 in September  – confirming that Brazilians are more optimistic about the country’s economy in the short term and the best figure since the onset of the global recession.  19.1 percent reported a good economic situation for their families – an increase from 18.6 percent in August.  Those who said their economic situation was bad marginally decreased to 13.5% (from 13.7% in August).

Brazil was awarded a place in the eyes of leading rating agencies through being upgraded to investment grade status (Baa3) by Moody’s.  The organisation is the last of the three main rating agencies to increase Brazil’s position and signalled that it could raise the country’s rating further by putting on a positive outlook.  According to Mauro Leos, Moody’s regional credit officer for Latin America: “Moody’s believes the chances that Brazil will stay on a multi-year path of improved creditworthiness are reasonably high. For this reason, we have assigned a positive outlook to Brazil’s sovereign ratings.”  Guido Mantega, the Finance Minister, set a target of 4 percent growth figure for 2010 which he said is achievable.  It was also widely reported that the economy showed no signs of over-heating with pay rises increasing at modest levels.  Consumers who put their buying decisions on hold were now returning to the market as perceptions of market improvement prevailed.  Economists did point to the possibility of increasing the SELIC interest rate in line with increased demand in the first half of 2010.

In other news, British oil and gas explorer BG Group reported another discover in the Santos region of Brazil (290 km off the coast of São Paulo state) with an estimation of between 1.2 to 2 billion barrels.  Frank Chapman, Chief Executive stated at the time that the new oil: “further extends an outstanding sequence for BG Group and partners … with eight discoveries in three years.”

The Brazil Economy in 2009 for the Real Estate / Land Investor: Quarter 4 – Click Here