As Brazil still struggles for its solidification on the international stage, many hurdles keep the Latin American country from becoming an attractive market for foreign investors. At this time, I'll look at various aspects that play a major role in spoiling the perception of big players regarding the Brazilian Economy.
Delusionshttp://www.investing.com/admin/content/article?id=218753#contentediting
There is no culture of investments in Brazil, what is translated into a small percentage of Brazilians taking risks in the stock markets. This unwillingness to face volatility and uncertainty for big gains in the long term leads to fewer money available for companies to support their projects.
Despite the small number of investors, there is a growing interest for investments in Brazil as competition between brokerage houses brings costs of intermediation down. This excitement regarding stocks creates the perfect environment for delusions as we could see in the OGX (SA:OGXP3) oil company case.
The billionaire, Eike Batista, had the ability to convince investors that his projects -- or dreams -- were viable by deluding them about production data, environmental permits and so on, what led to a huge level of volatility in the shares. Speculators jumped into for gains through volatility, whereas long-term investors who had put their money into the company by participating in the IPO got extremely frustrated. As a result, shares fell from above 20 reais -- approximately 8 U.S. dollars to one-fifth of a real.
Macroeconomics
Since governments are not willing to tackle the actual reasons of inflation in Brazil -- for example, the precarious infrastructure, which keeps businessmen from increasing production -- the interest rate is the main tool by which authorities fight the rising prices in the economy.
As I mentioned previously, Brazil lacks a culture of investments which transforms the stock markets into a consistent tool of funding for corporations. Every time authorities face an inflationary process, the interest rate is raised to keep rising prices from hurting consumption and production figures. As a result, fixed income investments become more attractive, so that people are likely to choose those instead of putting their money into stocks.
Besides, by raising the interest rate constantly, some segments of the economy such as retail and wholesale, which deeply rely on credit, the financial industry and others sectors, are affected substantially by the enhancement of the money price, what will result in a bad performance of the stock markets as a whole.
Commodities-Oriented Markets
According to statistics provided by BM&FBovespa, back in the first quarter of 2013, Petroleo (NYSE:PBR) shares accounted for more than 10% of all the trading volume of the Bovespa (the main benchmark). If we put together both -- Petrobras and Vale do Rio Doce -- into the analysis, the final outcome will reach 20% of the total volume of trade. Therefore, it is fair to state that the Brazilian stock markets are highly dependent of the commodities markets, which often leads to deviations in prices as a result of the overweight of some corporations.
Artur Salles Lisboa de Oliveira.