EY: Brazil becomes the world's 2nd-best destination for investments

07/06/2018


Fleury, Coimbra & Rhomberg Advogados

Once again, international investors are regarding Brazil as an attractive destination for their capital, according to EY, one of the "Big Four" audit firms. In just over seven months, the country jumped from 8th to 2nd place in a ranking of countries with the best environment for investments. The U.S. was ranked at the top.

Brazil's positive performance is related to the country's slow - but steady - recovery from the recession. The country's GDP is set to grow at positive rates for a second consecutive year, and Brazilian industry has recently posted a 0.8% growth in April alone. Instability in Brazil's competitors was also a factor.

EY's report didn't take the Brazilian presidential election into consideration. The firm wrote about global trends, basing its report on projections of future investments. It says more about how investors see Brazil in the short-term future rather than now.

Foreign direct investment

In 2017, Brazil received an inflow of USD 75 billion in foreign direct investment, on a par with Australia and 4% better than in 2016. For this year, EY projects that the money should come from three main destinations: the U.S., Canada, and Mexico. Investors' preferred sectors are energy and services, the auto industry, and consumer goods.


Why now is the time to invest in Petrobras

At the end of May, truckers from across the country staged a 10-day strike, demanding lower diesel prices and fewer taxes on transportation companies. In a country where two-thirds of cargo transportation is done by road, the protest hit the economy hard. Ultimately, the government caved to the protesters, creating new subsidies for diesel and admitting to the possibility of altering Petrobras's pricing policy.

Since 2016, Petrobras's prices have been pegged to international oil prices. Last year, price updates started to happen on a daily basis, which infuriated truckers. However, Petrobras's pricing policy helped the company reach a record-setting market value and become Brazil's most valuable company at the beginning of the year.

In the turmoil, however, Petrobras lost BRL 137 billion in 11 days. And until the electoral cycle is over, in late October, instability will reign. As odd as it may seem, now could be the perfect time to invest in Petrobras. That's the opinion of Gilberto Coelho, elected as the best analyst in Brazil in 2017 after having a portfolio that gained 55% last year.

Petrobras potential upside

Coelho states that, with time, Petrobras preferred shares should return to the BRL 23 per stock price range. "That gives you an almost 30% upside," he says. For that investment to be fruitful, however, it will take patient investors, prepared for a marathon rather than a sprint.

 

See the news in French here.