Portfolio Investors Return To Brazil
Foreign portfolio investment started to return to Brazil in March, following six consecutive months of portfolio investment outflows, in which a total of US$23bn fled the country, triggered by the Emerging Market-wide sell-off in September 2008.
Brazil – Foreign Portfolio Investment (US$mn) & Bovespa Index
Indeed, the March-June 2009 period coincided with the rally in global equities, which saw US$6.3bn in portfolio inflows enter Brazil. This has been a welcome development after ‘hot money’ left the country as quickly as it had previously entered in Q408, marking the largest flight of capital from Brazil on record – even dwarfing outflows seen in the wake of the Asian financial crisis and Russian default in 1998.
The return of the foreign portfolio investor to Brazil has sent stocks skyrocketing, with the Bovespa currently testing major technical resistance at 54,855. I think a break higher could see the index continue to regain lost ground, as stocks close in on the all-time high set last year. Although a continuation of foreign portfolio inflows will be predicated on investor risk sentiment, signs that Brazil is on the road to recovery should keep portfolio flows buoyant going forward.