If their security is not world class, they are not investment grade. Their carriers fly A-4 the same aircraft we flew in the 60s. Their phone networks don’t have enough 3G. Their judicial/ police don’t have video evidence, and best practice electric stun guns. So Brazil can’t get foreign $.
Thoughts? Are there best contacts in Rio/ Brazil, especially through APIMEC to continue this conversation? Some of the local police/ military police leadership, especially in the UPPs, in preparation for the 2014 World Cup and 2016 Olympics?
3 thoughts on “Is Brazil Investment Grade without world class security?”
A well-known hedge fund manager (whose name escapes me at present) has said, as I recall, “in emerging markets follow the insider money”. Presumably this is what many foreign investment funds think they’re doing when investing in Brazilian infrastructure projects because there has been a large increase in governmental agency-funded infrastructure spending beginning about 5 years ago (see, e.g., BNDES funding of PAC1 and PAC2 projects), with foreign funding apparently providing the required equity investments.
But BNDES spending has been so high over the last 4-5 years, it suggests the necessary equity investments were already in place on many projects and–importantly–that the insider money is now selling-off their equity positions; hence violating said Emerging Markets Insider Money axiom. If this is indeed the case, then it probably doesn’t matter so much whether Brazil is investment grade or not: the insiders might have already bought low and are now selling high.
So, if one takes seriously the proposition that security in Brazil is too weak at present–and if emerging market insider money has already funded a lot of the infrastructure projects–then the far more interesting investment hypothesis suggests now is the time to buy into the security sector. I think there are a lot of guys in security operations at the major Brazilian banks that could provide excellent insights into security in Brazil. After all this is where quite a bit of the insider money is held. 🙂
Actually, as an afterthought, there seem excellent opportunities to invest in projects to bring “creaky infrastructure” to First World standards in a country that most already regard as “investment grade”:
… I kid; I kid. :- )
I’d watch how the government is treating / respecting contracts.. the recent energy case.
But good news is that FGV survey shows that business confidence is rising gradually..