Brazil either very successful or very unsuccessful, says BDO partner
With the World Cup coming up next year and the Olympics in 2016, infrastructure represents a huge opportunity in Brazil, Michelle Carroll, partner of financial services division at BDO, says.
However, it is a matter of how much the government and the community will allow foreign investors in, she adds.
Michelle Carroll (pictured) has travelled to Brazil several times over the last years and has a sound knowledge and deep perception of how the government keeps a tight control on investments and has made it difficult for investors to penetrate the market.
“The stock exchange in Brazil has barely 100 stocks active and if an investor wants liquidity that’s all they’re left with,” Carroll said. But infrastructure requires money which is not easy to find for the government.
In Carroll’s experience Brazilian investors are characterised by a strong conservative attitude which makes it hard for foreign investors to deal with the Brazilian market. Despite such difficulties, Brazil has great potential and its managers have valuable skills to offer.
“However,” Carroll says, “the government has two options: either it keeps knocking on China’s door, as it’s been doing recently, to ask for money in exchange of its commodities; or it decides to open to foreign investors.”
In Carroll’s opinion, there could be better opportunities in Brazil to finance infrastructure via private equity and hedge funds to attract foreign money into those types of funds, where investors can put cash up-front and get return at a later date if there is little danger of government interference.
Addressing the issue of risk of excessive money lending to consumers, Carroll says that Brazilians do not run the risk of making excessive use of their liquidity as they still have very clear in mind the hyperinflation period which ended in 1994, when the country’s experienced a fourteen-year period of three-to-four-digit annual inflation rates.
“Brazilian investors are hugely conservative. Each time they decide on an investment they would typically always consider all the possibilities and variations,” BDO partner said.
As Carroll also explains, Brazil’s economy is inserted in a tightly regulated and controlled framework and for this reason all the regulation that is now kicking off in the western economies does not impact them.
“Brazil does not need to worry about getting ready for FATCA, Dodd Frank Act and AIFMD because they have always been playing by those rules. And again, this is a great advantage that Brazilian managers don’t take fully advantage of,” she says.
As Carroll also explains, many managers who had great potential and managed to implement innovative and more open strategies ended up in trouble with the authority.
“On the overall, I think that Brazil is either going to be very successful or very unsuccessful- there’s unlikely to be anything in between,” Carroll concludes.