Brazil Getting to Pre-Crisis Levels

Highlights include Gafisa (GFA - Analyst Report), Tam (TAM - Analyst Report), Vivo (VIV - Snapshot Report) and Ambev (ABV - Analyst Report).

Many indicators released yesterday in Brazil seem to confirm our basic economic scenario for the country and for emerging markets in general. As we have been saying, Brazilian interest rates are expected to keep on following a one-way street down, and the Brazilian real should continue to gain strength against the U.S. dollar.

After 18 months of small deficits in the current account, yesterday it was announced that Brazil had a surplus in April -- US$146 million. Trade balance remains positive and remittances from local companies have been decreasing. During the worst moments of the crisis in the end of 2008, international companies with operations in Brazil sent abroad all cash possible to help the head offices.

International investments in Brazil in April reached US$3.4 billion from US$1.4 billion in March 2009 and US$3.8 billion in April 2008. It seems that international investments in Brazil are almost back to the pre-crisis level.

International investments in Brazilian stocks were just US$247 million in April 2009, a quite disappointing number. However, just in May, until yesterday, international investments in Brazilian stocks reached US$2.4 billion!

The total level of international reserves in the Brazilian Central Bank (BCB) reached US$205 billion, back to where it was before the crisis. The BCB acquired US$1.3 billion during April to prevent a major appreciation of the Brazilian currency. In May, until May 22, BCB had bought US$2.4 billion.

As we said last week, the aggressive interventions of the BCB will not prevent a major appreciation of the Brazilian real. We also said that the real would test the BRL/USD level 2.00 soon. In fact, today the real reached 2.00 per dollar and we expect further appreciation.

It is quite clear that the economic environment in Brazil is changing for better and that Brazil will outperform more developed economies like the U.S., European countries and Japan. In fact, it is already outperforming!

We still believe the strength of the Brazilian domestic market will counterbalance the negative effects of the crisis and that Brazilian interest rates will keep on falling. In such an improving economic environment we recommend Gafisa (GFA - Analyst Report), Tam (TAM - Analyst Report), Vivo (VIV - Snapshot Report) and Ambev (ABV - Analyst Report).