Investment Grade Brazil

Península de Maraú- Native only landscaping, 30 meters from the beach.

Latin America Monitor, Vol 24, Issue 5, May 2007, suggests Brazil for the first time may be about to join the select Investment Grade Country Club. The 'Country of the Future' about to get serious. Complete analysis of fundamentals which seem excellent for sustained, long term growth.

"How Long Before Investment Grade?"

Following the change in Brazil's methodology for calculating GDP and the subsequent upward revision, investors are wondering how long it will be before Brazil gets upgraded to investment grade status. We think it is another piece of the puzzle that will help Brazil reach investment grade status within the next one or two years.


While both Standard & Poor's and Moody's have played down the good GDP news, we still remain upbeat with regard to Brazil's prospects of achieving investment grade status in the next one to two years. Indeed, while Moody's state that its "fundamental credit perspectives are not change by statistical adjustments of this type', we at BMI see the GDP revision as another piece of good news that supports our bullishness on Brazil. The most import net implication, in our view, is that gross public debt as a percentage of GDP- which has long weighed on Brazil's upgrades- has declined from 60% to 53% of GDP in 2006, and is set to decline futher as potential real GDP growth is higher now. This implies that Brazil has a lower public debt to GDP ratio than investment grade countries such as Hungary and Israel. However, while this is an encouraging development, these levels are still very high. According to S&P's sovereign risk indicators they are almost double that of the median 32.5% for BBB investment grade countires. While Brazil's public debt load is still very high as a percentage of GDP, most of Brazil's public debt is owed domestically..........

In sum, despite Brazil's shortcomings, we believe that fundamentals are sturdier than they have ever been which, in our veiw, will allow the economy to experience a sustained period of above trend economic growth. As such, we see potential for Brazil to reach investment grade status within the next one or two years.