Encouraging offshore investment for Brazilians
• Where are the hottest investment opportunities ex-Brazil?
• Have new CMN regulations spurred international investments or are Brazilians largely sticking to domestic opportunities?
• The appeal of high interest rates and massive growth potential within Brazil
• Impacts of domestic-centric portfolio allocation strategies on diversification and risk
• Capturing capital – how can international funds lure the allocations of Brazilian investors?
Currently, Brazilian regulators are trying to promote changes to encourage investment outside of Brazil. It is not forbidden, but is complex, especially for debt. Brazilian managers have created funds to allow them to trade international markets by buying shares of international funds that invest abroad.
One should be very careful of putting all of your eggs in a single basket, a single country. Brazil has been the best performing stock market over the last decade. But who knows where will be the best performer over the next decade? Valuation is not very compelling on a 3-5 year time horizon. It is suggested to keep your hedging assets in local currency, and your risk assets abroad.
Credit Suisse is currently looking at Eastern Europe as good opportunity. India and China are not looked at favorably. Brazil is ranked 20th by their metrics. Overall, Brazil looks expensive relative to Latin America. Ex-Brazil, equity markets are looking attractive, particularly banks within the U.S. and Japanese equities. Even better than equities is the currency markets.
Currently, the size of investment for investment outside of Brazil for local investors is only US$25 bil. It is important to educate investors, and to create strategies that are easy to follow. The panel suggests using aggregate funds to accomplish this. They are easier to explain the benefits. As clients become more educated, it will be almost natural for them to start diversifying offshore.
By Michael Pieper, Brasil Investment Summit