The story of Eike Batista, the Brazilian tycoon who went from being the seventh richest man in the world in 2012 to bankrupt in less than a year has made international headlines. The temptation to draw a parallel with Brazil’s recent trajectory has proven irresistible. Mr. Batista’s tale of boom and bust seems emblematic of Brazil’s rise as the darling of international investors and its recent downfall. An editorial published in the November 1st edition of the influential Financial Times shows that there is more to this analogy than meets the eye. Brazil remains a promising market for companies seeking to increase their sales or investments abroad. It belongs on the radar screen.
The editorial entitled “Brazil may finally escape from the samba clichés” speaks to the rising importance of this economy. The main points made by the author are as follows:
1) The Brazilian business class is actually conservative and underleveraged. Eike Batista is an anomaly.
2) The Brazilian US$2 trillion economy continues to be an important market for transnational companies, in particular in the telecommunications and consumer goods industries. In addition, Brazil’s agribusiness and commodities sectors remain strong and dynamic.
3) Brazil has exerted a stabilizing influence in South America at a difficult time in the neighbourhood. According to the editorialist “[i]f the US is castigated for not paying attention to the region, that is perhaps because it does not need to. As a regional hegemon Brazil does a fair job, and without exercising the neighbourly brutality of China, Russia or India.”
4) Since the emerging market asset class was created in the late 1980s, financial crises have come and gone, but emerging markets invariably return and are able to progress, although not always in a straight line.
The editorialist ends with a positive message: “the big question now for Brazil – and indeed all emerging markets – is whether that progress will continue as US rates start to rise. No, if you believe the past 30 years have only been about financial liquidity. Yes, if you believe that enough good habits have embedded themselves in the meantime. Despite Mr Batista’s example, I wager the latter – although it may be a rough ride.”
“Brazil may finally escape from the samba clichés,” by John Paul Rathbone, Financial Times, November 1, 2013