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Blame it on Rio?
Submitted by Leo Kolivakis, publisher of Pension Pulse.
Bloomberg reports that Brazil Stocks, Real Rally After Rio Wins 2016 Olympics Bid:
Brazilian
stocks rallied, making the Bovespa the world’s best-performing major
index today, and the currency gained after Rio de Janeiro was awarded
the 2016 Summer Olympic Games.
The Bovespa climbed 1.2 percent to
61,171.99, led by airlines Tam SA and Gol Linhas Aereas Inteligentes
SA. The real, the best-performing emerging-market currency against the
dollar this year, rose 0.3 percent to 1.7820.
“Improving
roads, stadiums, there is going to be a significant boost to growth,”
Citigroup Inc. Latin America equity strategist Geoffrey Dennis said in
a phone interview from New York. “Brazil is arriving. It has arrived in
the global stage. This is a kind of reward for Brazil’s excellent
policy.”
Rio, which is
hosting the World Soccer Cup in 2014, beat Madrid, Chicago and Tokyo to
become the first city in South America to host the Summer games.
The
games will help sustain Brazil’s economic growth by injecting $51.1
billion into Latin America’s largest economy through 2027 and add
120,000 jobs annually through 2016, according to studies by a Sao Paulo
business school for the Ministry of Sports. Brazil plans $11 billion of
investments as host, more than any other of the bidding cities.
“When
you look at hotels, the airlines, infrastructure, all these sectors
obviously will gain,” said Tony Volpon, Latin America strategist at
Nomura Securities International Inc.Gerdau SA, Latin
America’s largest steelmaker, jumped 3.3 percent to 23.86 reais today.
Tam, Brazil’s biggest airline, climbed 3.5 percent to 23.81 reais. Gol,
the second-biggest, rose 3 percent to 18.34 reais.
The winning bidder may also get a stock-market boost, an economist at Germany’s ZEW institute said Sept. 30.
“Winning
the Olympics bid, after having the rights to host to 2014 World Soccer
Cup, will definitely increase the chances of more investments to
Brazil,” said Adilson Goes, currency director at Fair Corretora, in a telephone interview from Sao Paulo. “Market sentiment turned positive.”
Brazil’s
victory also comes after Moody’s Investors Service boosted the nation’s
rating to Baa3, the lowest investment- grade, on Sept. 22, one year
after the global credit crisis.The nation’s gross
domestic product grew more than analysts forecast in the second
quarter, signaling the economy is recovering from the global recession
faster than other developing countries.
The
Bovespa has gained 63 percent this year, compared with a 19 percent
rise in the MSCI World Index of 23 developed countries. It rose 1.4
percent this week.
Did anyone really believe that
Rio would lose the bid to host the 2016 Olympics? What was President
Obama thinking flying off to Copenhagen for the International Olympic
Committee’s site-selection meeting? Talk about an Olympic flop.
The
only other city that had a chance was Madrid. But as much as
I love Madrid, I knew Rio was a shoe-in. It's about time South America
hosts the Olympics and Brazil is the "B" in BRIC economies. The IMF
sees Brazil growing faster in 2010 than global economy.
Back in August, CPP Investment Board (CPPIB)
announced that it has entered into a joint venture with Cyrela
Commercial Properties S.A. Empreendimentos e Participações, GIC Real
Estate, the real estate investment arm of the Government of Singapore
Investment Corporation, to invest up to US$250 million for
the development, acquisition and management of institutional-quality
commercial properties in Brazil. That appears to have been a very wise
decision.
But along with all the praise, Brazil's economy faces serious challenges. For one, if they're not
careful, they risk overheating. There is a lot of speculative money
flowing into Brazil and now that Rio won its bid for the 2016 Olympics,
you can expect these flows to continue pouring in.
Brazilian
pension authorities are taking notice. Bloomberg reports that according
to Abrapp, the nation’s pension fund association, Brazil's pensions don't need more stocks:
Brazilian
pension funds have no “great need” to buy more stocks as a possible
rise in interest rates next year will boost returns on bonds, said
Abrapp, the nation’s pension fund association.
“Funds
will have to take more risk, but this doesn’t mean letting go of
prudence,” said Abrapp president Jose de Souza Mendonca. “The funds
won’t change much from where they are today” with about 30 percent
invested in stocks, he told reporters at Abrapp’s annual conference in
Curitiba, Brazil.
The monetary council last week
approved changes to regulations that will allow the 455 billion-real
pension fund industry to move all of its assets out of fixed- income
investments. Pension funds were previously required to keep at least 42
percent of funds in fixed-income assets.
Pension
funds, which invest 63 percent of their 455 billion reais ($256
billion) of assets in fixed income, have a “comfortable” surplus,
Mendonca said. The funds will likely have a return of 16.8 percent this
year after reporting a loss of 1.6 percent in 2008, he said.
The likelihood that rates will rise next year gives fund managers more time to adjust, he said.
Brazilian
interest-rate futures suggest central bankers will raise the benchmark
lending to about 11 percent by July 2010 from a record low of 8.75
percent today, according to data compiled by Bloomberg.
Prudence
is critical if Brazil wants to grow without overheating. But other fund
managers are going full steam ahead. Bloomberg reports that BB DTVM,
Brazil’s biggest asset-management firm, is betting on commodities:
Oil
prices and Brazilian stocks have room to rally as investors
underestimate the speed of the global economic recovery, said Joao
Ayres Rabello, the president of BB DTVM, the nation’s biggest
asset-management firm.
Real estate companies, which have more
than doubled this year, and raw-material exporters may be poised for
the biggest advance among Brazilian stocks, said Rabello, who oversees
the equivalent of $167 billion in assets at BB DTVM, the asset-
management arm of Banco do Brasil SA. The firm will begin raising money
tomorrow for a fund that will bet on gains in oil prices and reimburse
investors if futures contracts traded in New York decline, he said.
“This
is a call on global growth and the possible demand for oil,” Rabello
said in a telephone interview from Rio de Janeiro. “The recovery of
commodities and rebound in the domestic market will probably happen a
bit faster than people expect, leading us to believe that profits will
be better and it will bolster the market.”
I
hope Mr. Rabello is right because if global growth falters, so will the
demand for oil. And those speculative flows will leave faster than they
came into Brazil.
But the Brazilian story isn't just about speculative flows. There
are strong fundamentals driving growth in Latin America’s biggest
economy. And while huge inequalities still exist, Brazil has rightly
claimed its place among the world's developed economies. I congratulate
them on this well deserved win and look forward to the 2014 World Cup
and 2016 Olympics. Parabéns!
»
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Bunch of BS thats what it is !! I'm from Brazil and it is just degusting to see so much money wasted in a freaking world cup and Olympics, while kids are sleeping with their stomac empty around the construction sites.
Lula came from a poor family from one of the poorest states in Brazil but I guess he forgot all about his past and just want to write his name in history does not matter what the cost will be......ego can make people insane!!
Rio is a fantastic city, out of four options it's really the best choice given its natural beauty and even despite all the problems that Rio migt have in terms of crime or poverty.
Looking forward to Mumbai becomming a host for the Olympics.
At least it'd get the BRIC/Third World lovefest out of the way. After Mumbai, it goes to the US or an EU country as usual.
Obama went to Copenhagen is simple to explain. He is narcissistic.