How is Brazil Different in This Crisis?

By Rodrigo Lowndes

Most economists agree that excessive debt is at the core of the crisis we are living today. Too much easy and cheap money has increased extraordinarily home prices in the U.S., in Europe and in other countries. It has also sustained consumption for many many years in these markets. Right now, people is realizing they probably bought more than they could afford. Banks are realizing they have lent money to people that will not be able to repay them. Governments are also realizing that they also have spent too much.

Home prices will inevitably come down in those markets. Many people will have to move into smaller homes. Banks will either break or be rescued by their governments if they are lucky. Other painful things will have to happen in the coming years before the U.S. and Europe can grow again.

But with any crisis comes also opportunities.

What if you were to find a country where consumers haven't borrowed much money, home prices haven't increased that much, banks have some of the strongest balance sheets in the world, the domestic market is not very dependent on exports or imports, the country is self sufficient in oil, food and other commodities, and government has been adopting a conservative fiscal policy for over 10 years?

Would assets in this market be too expensive to invest in? What is I told you that assets in this country are now at their cheapest prices in a long time, despite the fact that the economy is still robust? What if I told you that this government still offers interest rates in excess of 8% p.a. above inflation for short term deposits?

This country exists, Brazil.

Over the last four weeks, with the crisis getting tougher, international investors sold Brazil and other emerging markets heavily to increase their cash positions in their home markets. Local stock prices are low, currency is depreciated. And you now can find world class companies priced at deep bargains. You can buy companies that produce oil, or minerals, or companies that produce for the domestic market.

Brazil is certainly going to suffer with the crisis in the main centers of world consumption, the U.S. and Europe. Right now, local economists and the IMF are reducing Brazil's 2009 growth rates from 5% to something like 3.5%. Having said that, capital flight has caused local stock prices and local currency to suffer much more than what would rationally make sense, creating one of the biggest bargains in this decade.

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