Tag Archives: corruption

EWZ: Ibovespa has its best semester since 2009 and US$ drops 18.6% versus the Brazilian Real

Brazilian’s most traded stock ETF in the US, EWZ soared 46.5% in the same 6 months:

EWZ-6-Months

In the beginning of the year, the perspective for the Brazilian market was not good with the country in recession and inflation sky rocketing. However, in the middle of February, the inflection started fueled by a global recover in commodities prices and an improvement in the expectations for the economic policies, which became known as the impeachment rally.

Besides, the downside event of the semester, the Brexit, was followed by an unexpected help which were the speculations that central banks all over the world will stimulate their economies to face market volatility. On Friday, the president of England’s central bank, Mark Carney, said that the growth in the UK will slow down in the next months and additional interest rate cuts and other measures of monetary ease will be necessary.

Sure, Brazil is not out of the woods yet and the new government still has lots to do to recover the economy. However, the better economic climate has started to translate into improvements in the confidence:

Consumer and Industry Confidence in Brazil

Besides the more favorable political environment, what is also helping in this confidence growth is the fact that some economic indicators are improving, albeit still very bad: IBC-Br, Industry and Services.

Brazil Bull Who Got It Right in 2002 Says This Time No Different

The selloff punishing Brazilian markets in recent months isn’t fazing Jerome Booth. He’s seen it before and says just like then, it’s way overdone.Yes, Brazil has serious problems. The country’s “a mess,” he says, with a massive corruption investigation at state-run oil company Petroleo Brasileiro SA, a worsening fiscal outlook, the steepest recession in 25 years and a political system so fractured that needed reforms just aren’t getting done. That’s not to mention a credit-rating cut to junk and the currency’s plummet to a record low.

But there’s no chance the government is going to default, and politicians eventually will find the will to push through measures to shore up the budget and restore growth, Booth said in an interview in New York. The panic among investors is excessive, just like 13 years ago when bond prices collapsed along with the currency amid concern the front-runner in presidential elections would repudiate the government’s debt, said Booth. He was then head of research for Ashmore Investment Management, at the time one of the biggest dedicated emerging-market sovereign bond holders.

“You’ve got the classic ‘everything’s as bad as it can possibly be’” situation, said Booth, the chairman of New Sparta Asset Management, an investment company he started after leaving Ashmore in 2013. “But it’s all priced in now.”

Brazil’s overseas bonds are close to reaching bottom, according to Booth, after losing investors 8.3 percent this year. Only Zambia has posted worse returns among more than 60 emerging-market countries tracked by JPMorgan Chase & Co. indexes. Brazil’s currency, which gained 0.7 percent Monday as of 2:03 p.m. in New York, is still down 32 percent against the dollar this year, the most among major emerging markets.

After three sovereign rating cuts in the past three months, one of which cost Brazil its investment-grade rating, the government will put a “proper economic program” in place and restore investor confidence, Booth said.

“I would think it’s months rather than a year,” he predicted.

What makes Booth confident even as shops from BlackRock Inc. to Federated Investors Inc. and RBC Capital Markets see reasons to avoid Brazil?

Because he thinks most investors have overestimated the risk, just like in 2002. Back then, a selloff hit ahead of the presidential election as Luiz Inacio Lula da Silva gained in the polls. The concern was that the former union leader and founder of the Workers’ Party would declare Brazil’s debt illegitimate. Observers worried the country was slipping backward just a decade after shaking off a legacy of hyperinflation and political instability to become one of the world’s brightest stars among developing nations.

The real plunged to a record low, average yields on the country’s bonds soared to more than 25 percent and the benchmark stock gauge tumbled 40 percent ahead of the vote.

“The hedge funds at that point had this view that there’s a thing called a self-fulfilling prophecy,” Booth said. “They knew one thing: If all their peers in New York were negative,” then Brazil “would fall over. I thought that was just nonsense.”

In fact, when Lula won, investors were rewarded. From his inauguration at the start of 2003 until he left office at the end of 2010, Brazil’s dollar-denominated bonds returned 256 percent, more than double the emerging-market average. Real-denominated notes advanced 520 percent in dollar terms, almost three times the average for peers. The currency more than doubled in value against the dollar, and stocks surged 500 percent.

While Booth had money at stake when he made his call in 2002, this time around he’s not investing in Brazil’s markets. After leaving Ashmore in May 2013, he established London-based New Sparta, through which he manages investments in U.K. phone company New Call Telecom and a magazine publisher, among other businesses. New Sparta funded the Drew Barrymore comedy “Miss You Already,” which premiered at the Toronto International Film Festival last month.

Still, from his vantage point, Booth says investors are too worried about developing countries. Emerging-market assets have dropped for most of this year amid concerns the Federal Reserve will raise rates and as the Chinese economy shows signs of deceleration.

“1998 was the last time when you had a systemic crisis which could have led to serial defaults over emerging markets,” Booth said. “We haven’t had that, and we’re not likely to have that again.”

Brazilian Antitrust Council Investigates 15 Foreign Financial Institutions for FOREX Manipulation

Brazilian antitrust council, CADE (Administrative Council for Economic Defense), opened an administrative process to investigate alleged cartel consisting of 15 foreign financial institutions in order to manipulate the foreign exchange market. It is the first antitrust case in Brazil for manipulating rates in the financial market.

Financial InstitutionSome of these banks have been investigated for the same practice in the UK, Switzerland and the United States, in cases that came to light in 2013 and which totaled over US$ 5.8 billion in settlements and fines. The Brazilian investigation started from a leniency agreement signed by a cartel participant with CADE and the federal prosecutors. The bank in question, whose name is kept confidential, requested full immunity after cooperating. The institutions investigated in the Brazilian process are: Standard Investment Bank, Bank Tokyo Mitsubishi UFJ, Barclays, Citigroup, Credit Suisse, Deutsche Bank, HSBC, JPMorgan Chase, Merrill Lynch, Morgan Stanley, Nomura, Royal Bank of Canada, Royal Bank of Scotland, Standard Chartered and UBS, as well as 30 individuals.

Read More:

Brazilian Banking
Brazilian Antitrust Council
Brazilian Exchange Rate

After the Merge with BG, Shell will have 20% of its Global Production in Brazil

Responsible for the biggest oil industry M&A deal in the past decade, the president of Royal Dutch Shell, Ben van Beurden, does not rule out increasing the company’s exposure in Brazil, expanding the already billionaire investment program that will be put in place following the merger with BG.

After the merger of $ 70 billion is completed, which is expected for early 2016, after regulatory approvals in several countries, Brazil will be the country with the largest stake in Shell’s production portfolio. Even with its partner Petrobras involved in a corruption scandal, the Dutch executive says it is closely watching, but trusts the technical expertise of the state-controlled company.

Beurden estimates that Brazil will account for 20% of global production of the company when some of the projects under development by the two companies

come into operation, including Libra, which Shell has 20%, and the giant pre-salt fields where BG is a partner, like Lula and Sapinhoá, to name a few. The executive points out, however, that the appetite of Shell does not stop there and is willing to increase its presence in Brazil. He does not rule out participating in the 13th Round of the National Petroleum Agency (ANP), scheduled for October.

“I believe that the fundamentals of Brazil are very strong and, particularly, if you look from our perspective, we are investing in a world-class resource. We have to be optimistic. And I am.” he said, concluding that he will “look seriously” to the ANP auction data.

Shell chose Brazil for the annual meeting of its board of directors and the executive committee. A testament to the appetite of the Anglo-Dutch company with the country is that Brazil should stay out of the sale of $ 30 billion of assets, planned program to take place between 2016 and 2018.

Speaking to newspaper Valor Economico, Beurden listed projects in the country, including Raízen distributor partnership with Cosan, and explained that investing in the Libra auction came from the realization that Shell’s participation in E&P was small in the country.

“We always had the perception that our presence was not big enough, considering the size of the country, its reserves, and also due to its geology. We thought we needed to be more exposed to Brazil and the deal with BG will fix it.”

Shell invested $ 35 billion in 2014, largely on the company’s organic growth program. In 2015, the plan is to reduce the investment through cost cutting, forced by falling oil prices.

“We want to take a little advantage of the supply chain weakness. We are putting off investments, renegotiating contracts and, of course, questioning ourselves about some projects”, he said. “But we’re still looking at more than $ 20 billion investment in 2015. In 2016 and beyond it’s hard to predict because we have to consider the portfolio of Shell and BG, combine the two and decide which areas to prioritize.”

It is a fact that Shell will sell some assets, but Beurden ensures that “there will no fire sale”. He said Shell will be investing, with annual program of $35 billion to $40 billion. The expectation for the long term is that oil prices remain in the range of $70 to $90 per barrel. Yesterday a barrel of Brent crude closed at US$ 63.34, for example.

On the asset sale program, the executive said that two main areas, that even justified the merger with BG, will be left out: the areas of exploration and production in deep waters and the integrated gas business, as the company refers to the projects of Liquified Natural Gas (LNG).

The oil and gas projects of unconventional sources should go through further scrutiny. The involvement of Petrobras in what is already one of the biggest investment corruption scandals in the world was discussed before the offer for BG, which is relevant partner of the state-controlled company in the pre-salt.

Beurden says it is “uncomfortable” to read the news involving the Brazilian oil company, but says that as a partner of Petrobras in Libra, Shell did not notice any side effects on the projects.

“Of course when the agreement with BG completes, Petrobras will be an even greater partner. We discussed this a lot with our board before presenting the proposed merger and take a fundamental decision, based on the fact that Petrobras is very important for Brazil. It is a company we know well from a technical and commercial point of view and regard it as a first class company on the technical expertise and competence”, he said.

The executive also said that it was considered the possibility to involve BG in the corruption investigations, since the British company is a partner of the pre-salt areas where took place the projects led by Petrobras’ Service Board, under Renato Duque (arrested by the police) and the snitch Pedro Barusco (head of engineering).

“Up until now, this is clearly not the case. But it is very difficult to have a clear vision. It’s still too soon and you never know what else can come from this investigation”, he said. “We did a due diligence with our counterparts in BG after we discussed the commercial terms and I can say that was the first question we asked. And of course one can only give guarantees based on what they know. And I don’t know what I don’t know. But so far, there is no concrete indication of risk [of BG involvement]”, he said.

Admitting concern over delays in platform delivery schedules, Beurden said the bid for BG suffered a “discount” on the basis of identified problems, which were not enough to stave off Shell. “Our business, in a sense, is risk management. So, we may have surprises, we may have some negative events, but in this context, it’s no different from any other project”.

Historical Moment for Brazil!

José Dirceu Escorted by Federal Police

Brazilian supreme court has mandated the immediate imprisonment of eleven politicians involved in curruption during the government Lula.

First of all, this topic should not be used by other parties for political purposes. The ones that are mostly celebrating the sentence, PSDB supporters, should remember that the CPI (parlamentary investigation) has determined that the mensalão has cost R$ 10 million to the country. It may have been more, however, only the propinoduto, operation to steal money from the state of São Paulo in the PSDB government, has cost the state US$ 50 million ( ~ R$ 110 million), according to investigations concluded in Europe, destination of great part of the stolen money

Having said that, the moment is definitely historic! It’s one of those few things that still gives us hope in Brazil: the independence of the three powers, even though it’s often debatable.

Impunity is THE biggest problem of Brazil as a nation! It’s the fuel for all of the curruption that criples the country and causes that no money is left to invest in areas with screaming needs, such as: healthcare, education, infrastructure, public transportation etc.

Curruption in Brazil is so widespread due to the complete awareness from politicians that they are never going to suffer any consequence like being caught and going to jail. In the worst case, they lose their term and come back in the next election. Or retire with a fat checking account.

For that reason, the moment is historic! The case sets a precedent and shows politicians that they can indeed go to jail. Now, that doesn’t mean everything is going to change and curruption is over in Brazil. Far from that. But they will think twice now before getting into ilicit behavior.

To get permanent results, we need more! We need serious investitgations also in the state and municipal levels so this doesn’t become just a flag for the next elections in 2014. The case brings hope of a Brazil with less curruption in the future. This is indeed something to fight for in the popular riots: the of impunity! It’s the best way to fight for a better Brazil for the next generations.

Translation from my original post at: http://www.pensamentoliberal.com/momento-historico-para-o-brasil/