Current State of the Brazilian Economy

Investors have been pouring money into emerging markets this year. Stock market indices in Brazil, Russia, China, India, etc are up over 50% since the March lows. The ishares MSCI Brazil Index ETF (EWZ) is up 57.69% year to-date till the end of last month.

In order to  check the current state of the Brazilian economy,I reviewed a presentation  titled “Brazil: Economic Prospects, May 2009” by Mario Mesquita of Banco Central Do  Brasil. Some of the key points are discussed below.

1.Brazilian bank’s are well capitalized. At the end of 2008, the  stood at 18% which is well above the regulatory requirement of 11% and the Basel minimum of 8%. Hence banks such as Itau Unibanco (ITUB), Banco Bradesco (BBD) are well-positioned for an economic recovery.

Brazil Banks capital adequacy ratio

However the delinquency ratio rose from 4.4% in 2008 to 5.0% in first quarter this year. This is a cause for concern and must be monitored thru the rest of the year.

Brazil bankS delinquency ratio

Credit to new vehicles has started to pick up from March. This shows that consumers are able to buy new vehicles and finance them with credit.

Brazil Vehicle Loans

In addition to vehicles loans, credit for housing has also increased this year. Year-to-date it is up 9.2% as the chart shows below. This number is important to keep an eye on since housing is an important sector for credit growth.

Brazil Housing Loan Growth

Brazil ranked 2nd this year for attractiveness of emerging markets among private equity fund managers for the next 12 months.

Brazil Attractive market

Long-term growth in retail  is in tact and vehicle production was up in March as well.

Brazil Car Production

Brazil retail growth

Source: Brazil: Economic prospects, May 2009
Mario Mesquita, Banco Central Do  Brasil

Leave a Reply

Your email address will not be published. Required fields are marked *