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Is Brazil “Investment Grade” for Individual Investors?

Posted May 16, 2008

“Standard & Poor’s just boosted the country’s credit rating to ‘investment grade’ in recent weeks, moving its rating from BB+ to BBB-. Why should we care? After all, isn’t Brazilian debt bought mostly by institutional investors? That’s true. But with the increased debt rating, Brazilian shares also should benefit.”– Martin Hutchinson

by Martin Hutchinson, Money Morning

Baltimore — (TFN): Brazil is a lot like a person who gets a new job, pays off some of his debts, and has his credit score upgraded.

In pretty short order, all the charge-card companies boost his credit limits, cut the interest rates he’s paying on his outstanding balances, offer him new credit lines - and even make him eligible for various “rewards” programs that give him all sorts of freebies for spending money.

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Brazil finds itself in that situation because uber-debt-rater Standard & Poor’s just boosted the country’s credit rating to “investment grade” in recent weeks, moving its rating from BB+ to BBB-. Why should we care? After all, isn’t Brazilian debt bought mostly by institutional investors? That’s true. But with the increased debt rating, Brazilian shares also should benefit - provided the government doesn’t embark on a big spending binge.

Brazil was included in the “BRIC” (Brazil, Russia, India, China) group of rapidly growing emerging economies that was created by Goldman Sachs Group Inc. (GS: NYSE) back in 2003.

At that time, it really didn’t deserve the distinction. Long-term growth since the 1970s had averaged less than 2% per capita, and the country had narrowly avoided bankruptcy only the year before. Long-term interest rates were above 20% (around 15% in real terms), which hardly encouraged companies to make capital-spending commitments that might grow the economy. Most alarming, a left wing socialist named Luis Inacio Lula da Silva had just been elected president. Read on to learn how times have changed and whether Brazil is a good investment for your portfolio.

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Posted by Martin Hutchinson · Filed Under International Investing 

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