Banking big on Brazil: PwC

Banking big on Brazil

Why some of the world’s largest companies and investors are seeking to capitalize on changes in Brazil

Within the first few weeks of the new government in Brazil, the Bovespa - its domestic stock market - has hit historic highs - and the Brazilian Real (BRL) is one of the top performing currencies in 2019. Riding the “Bolsonaro bump,” incoming officials have promised the advent of an “American-style capitalism” to a country accustomed to very big government, or “state gigantism.”

Some of the world’s largest financial institutions are banking big on the country upon the expectation that ongoing reforms to improve the macro and business landscape - including pension reform, deregulation, reducing bureaucracy and red tape, and tax reform - will be enacted by Bolsonaro’s team, passed by the new Congress, and implemented.

Furthermore, in a world of financial volatility - and fragility in the macroeconomic environment - one can argue that Brazil is relatively well-poised to weather the next correction in the markets, or global recession. Its demographic dividend and diversified economy continue to enshrine it as a favorite investment destination, and as a geographical or regional priority for significant global institutional investors.

At the macroeconomic level

As Brazil has emerged from its worst recession in recent history, in many ways, Bolsonaro and his team have inherited a healthier economy, in cyclical upswing and posting positive GDP growth. The central bank has maintained its benchmark Selic interest rate at historic lows, and inflation hovers near comfortably low levels. And while the rest of the world ponders the timing and source of the next correction in the markets, Brazil is relatively well-poised to withstand external shock, such as a global recession.

At the geopolitical level

Whether or not the pension reform passes depends on the ability of the new administration to push it through Congress. Bolsonaro’s PSL party is not a majority party in either the lower house (the Chamber of Deputies) or the Senate - and passing a new pension reform requires two-thirds of the vote.

Bolsonaro’s ability to build a “cross-bench” support base will be critical - as will his ability to ally with the new speaker of the house on a pro-reform agenda.

At the sector level

The potential for new privatizations in infrastructure - including ports and power generation - is material, and for a country with a wealth of sun and wind, opportunities in renewable energy also abound. Brazil is the largest recipient of venture capital (VC) investing in Latin America, and its thriving e-logistics market is alluring for both real estate and VC funds alike.

Infrastructure and green energy:
Bullish on the prospects for the new government in Brazil, some of the world’s largest infrastructure investors are poised to allocate large amounts of capital - and to potentially take advantage of privatization efforts as and when these arise.

VC, financial services and real estate:
With a greater presence on the ground in Brazil, incoming foreign banks may yield corollary commercial real estate investing opportunities in the country’s commercial hubs.

About PwC’s Cornering the globe publication series

Cornering the globe is a publication of PwC’s Geopolitical Investing practice, and is intended to highlight key issues our clients should be considering as they think about expanding into global markets. At the Macro level, long-term economic and demographic trends indicate an abundance of opportunities to profit and expand in emerging markets. However, the risks of doing business in these regions - such as exchange rate volatility, political uncertainty, meeting the skills gap, and shifts in tax and regulation - often hamper decision-making, forcing companies to react to events, rather than prepare for change, and capitalize on potential dislocations.

By critically assessing key geopolitical issues that impact our clients, we provide insight into the ways in which companies can build capabilities to weather political and economic change in their foreign operations. Our Geopolitical Investing team combines rigorous insight into the key macroeconomic and geopolitical issues facing business leaders today, with deep industry and sector expertise, helping companies to strategically allocate capital to grow specific business units or assets in markets around the world.