Brazil Real Surges Most Since 2009 as CPI Trumps Currency War

(Bloomberg) -- Brazil’s real posted its biggest weekly gain since 2009 on speculation the government is prioritizing efforts to slow inflation over its fight against a stronger currency.

The real advanced 1.5 percent to 1.6070 per dollar at 5:02 p.m. New York time, from 1.6318 yesterday. The real surged 3.4 percent this week, the most since the period ended July 17, 2009, and rose to its strongest since August 2008.

The central bank said March 29 the economic costs are “too high” to cut inflation to its 4.5 percent goal this year from a more than two-year high of 6.13 percent currently. Investors are now speculating the government will shift strategy and allow the real to strengthen as a counterweight to inflation, said Mariano Cirello, who manages 5 billion reais ($3.1 billion) as chief investment officer at Mapfre Investimentos in Sao Paulo.

“Rumors have been circulating that the government abandoned the floor of 1.65 reais, and that now the value would be 1.60 reais” per dollar, Cirello said in a telephone interview today.

Finance Minister Guido Mantega, after saying in September that a global “currency war” is cutting into Brazilian exporters’ profits, has boosted taxes on some investments to stem the real’s advance. This week he slapped a 6 percent levy on international debt sales and loans with an average minimum maturity of up to 360 days, after tripling in October a tax on foreigners’ purchases of fixed-income securities.

Global Economy

Optimism on the prospects for global growth also is boosting demand for developing-world assets, said Felipe Brandao, emerging-markets strategist at ICAP Brasil, the third- largest currency broker on the BM&FBovespa SA exchange. The U.S. economy added more jobs than forecast in March and the unemployment rate unexpectedly declined to a two-year low of 8.8 percent, a report showed today.

“The payroll today came in above expectations and this is favoring risk assets,” Brandao said in a telephone interview.

Yields on Brazil’s interest-rate futures contracts climbed after the country’s industrial production rose more than economists expected in February. The yield on the contract due in January, the most traded today in Sao Paulo, rose 4 basis points, or 0.04 percentage point, to 12.15 percent.

Brazil’s industrial production rose 1.9 percent in February from the month-ago period, the national statistics agency said today in a report distributed in Rio de Janeiro. That compares to a median forecast of 0.9 percent in a Bloomberg survey of 28 analysts.

“Industrial production came in high,” Ures Folchini, vice-president of fixed-income at Banco WestLB do Brasil SA in Sao Paulo, said in a telephone interview. “Everyone is uncomfortable with the level of inflation and activity.”

Huge Brazil oil field will bear Lula's name

SAO PAULO Dec 29 (Reuters) - To the list of accolades for Brazil's wildly popular outgoing President Luiz Inacio da Silva, add the following: one of the country's biggest new offshore oil fields will bear his name.

State-run oil company Petrobras (PETR4.SA)(PBR.N) said Wednesday its Tupi field, one of the crown jewels in Brazil's so-called subsalt oil fields, would now be known as "Lula."

The new nomenclature was made possible by a bit of creativity on Petrobras' part.

The company has traditionally given its oil fields the names of aquatic creatures when they become commercially viable. As it happens, Lula also means "squid" in Portuguese.

"I'm proud," Lula told reporters. "But it's not my name -- it's a (mollusk)."

The former metalworkers' union leader, who rose to power despite having just an elementary school education, is set to leave office on Jan. 1 with an approval rating of 83 percent. U.S. President Barack Obama bestowed him last year with the title of the "most popular politician on earth."

During eight years in office, Lula's stable economic policies helped lift millions of Brazilians out of poverty and made the country a darling among Wall Street investors. His advocacy also helped the country win the right to host the 2014 World Cup soccer tournament and the 2016 Olympics.

Lula's last year in office, in particular, has become a kind of victory lap. His life story was portrayed in a film which will be Brazil's submission for Best Foreign Language Film at the 2011 Academy Awards.

Brazil's vast deep-water oil reserves have become a new frontier for energy exploration that could turn the South American nation into a major energy exporter.

Experts believe the country may have more than 50 billion barrels of oil buried as much as 7 kilometers (4.4 miles) below the ocean's surface beneath a thick layer of salt in a region known as the subsalt.

Another subsalt field, Iracema, was renamed on Wednesday as well, to Cernambi -- another mollusk. (Reporting by Inae Riveras and Denise Luna; editing by Jim Marshall)

Read more on investing in Brazil : http://www.artremis.com/article/investing_in_brazil.html

Dilma Rousseff Elected Brazil's President

Da Silva Protégée Resonated With Voters Seeking to Extend Departing Leader's Legacy in Latin America's Biggest Nation

• Dilma Rousseff set to be Brazil's first female president
• 
  
• First exit polls predict that Dilma Rousseff, a former Marxist rebel, had won after taking 58 percent of the vote

SÃO PAULO, Brazil—Dilma Rousseff, a 62-year-old former leftist guerilla-turned-powerful cabinet minister, was elected Brazil's first female president in a victory sealed by economic prosperity and the broad popularity of her predecessor and mentor, President Luiz Inácio Lula da Silva.

With 99% of the votes counted, Ms. Rousseff won 56% of the votes, compared with 44% for rival, José Serra, a former São Paulo governor, in a two-candidate runoff election. In early October, Ms. Rousseff won a multi-candidate first-round contest but failed to garner the 50% of votes needed to avoid a second round.

The election elevates a relatively unknown bureaucrat to the helm of Latin America's biggest country, as it carves out a bigger role in the global economy. Brazil became the world's eighth-biggest economy in recent years, giving it enough clout to help push the U.S. and Europe to include emerging nations in talks on the global financial crisis. Brazil hosts soccer's World Cup in 2014 and the Olympics in 2016.

"I voted for Dilma because I hope she'll continue Lula's work," said Maria Rosa Lima de Souza, 52, a housekeeper in Rio de Janeiro's working class Santa Teresa neighborhood. "Our way of life is improving."

Leaving her home for a victory party at a hotel in Brasilia, the capital, Ms. Rousseff told reporters she was "very happy" and "I promise to honor the confidence (voters) showed in me."

A twice-divorced economist who battled back from cancer last year, Ms. Rousseff won by promising continuity. During two terms in office, Mr. da Silva became one of Brazil's most beloved presidents as a policy mix of exchange-rate stability and rising social welfare spending helped lift 21 million people from poverty. Ineligible for re-election, Mr. da Silva groomed Ms. Rousseff as his successor. His popularity even helped the Rousseff campaign survive a corruption scandal that in September prompted a former aide of Ms. Rousseff to step down from the government.

A message of extending Mr. da Silva's legacy resonated with voters in a country set to grow over 7% this year. Household incomes rose by 32% under Mr. da Silva as millions of newly minted members of the middle class moved into new homes. Though many among Brazil's rich elites revile both Mr. da Silva and Ms. Rousseff, the wealthy benefitted, too. Brazil's benchmark stock index rose more than 500%, and Lamborghini opened its only Latin American dealership in São Paulo.

More on investing in Brazil

Brazil's Petrobras to Begin Oil Output at Baleia Branca

SAO PAULO -(Dow Jones)- Brazil's state-run oil firm, Petroleo Brasileiro SA (PBR, PETR4.BR), or Petrobras, will begin production Thursday at the pre-salt Baleia Branca oilfield off the coast of the southeastern state of Espirito Santo, the company said.

The floating production platform, located about 85 kilometers off the coast of Brazil, will begin output of 13,000 barrels of light crude a day and will reach capacity of 20,000 barrels a day by the end of this year, Petrobras said in a regulatory filing.

Petrobras said last month it plans to begin production from the Tupi field in the fourth quarter. Tupi is estimated to hold 5 billion to 8 billion barrels of oil equivalent.

Bovespa, Real Rally on Industrial Output, China Manufacturing

(Bloomberg) -- The Bovespa stock index climbed to the highest level in 21 months and the real strengthened after Brazil’s industrial production grew more than estimated and manufacturing in China expanded at a faster pace in March.

Gerdau SA gained 3 percent, leading steelmakers higher, after industrial output expanded at the quickest rate in four months. Petroleo Brasileiro SA, Brazil’s state-controlled oil company, rose for a second day as crude prices climbed. Duratex SA increased 1.7 percent after Deutsche Bank AG recommended buying the maker of panels for the furniture industry.

The Bovespa index rose 1.1 percent to 71,156.15 at 1:23 p.m. New York time, climbing for a fifth day and erasing a drop of as much as 11 percent from a 19-month high on Jan. 6. Forty- two stocks gained on the index while 16 fell. The real strengthened 0.9 percent to 1.7660 per dollar.

“We’re basically seeing industrial activity rising in all countries, and not only rising but intensifying,” said Alvaro Bandeira, director of Rio de Janeiro-based Agora Corretora, Brazil’s second-biggest brokerage. “We’re seeing an acceleration of activity, which increases investors’ propensity for risk-taking a little bit more.”

The Bovespa has climbed 3.8 percent this year on signs the global economic recovery is gaining strength. The measure soared 83 percent in 2009, its best performance since 2003, as domestic demand, government stimulus plans and rising prices for Brazil’s commodity exports helped pull the economy out of recession faster than most countries. The real has dropped 1.2 percent this year after surging 33 percent in 2009, the best performance among 26 emerging-market currencies tracked by Bloomberg.

Real’s Rise

The rebound in economic activity and commodity prices may push the real back to last year’s high of 1.70 per dollar by July, said Ryan Gibbons, a partner at GPS Capital Markets, a Salt Lake City-based foreign exchange advisor to mid-size companies.

“If we see a normal operating environment with no major crisis, the currency will make a nice run again,” he said in a telephone interview.

Brazil’s industrial output increased 1.5 percent in February from January, beating the median estimate of a 1 percent advance by 30 analysts in a Bloomberg survey, and more than a revised 1.2 percent gain in January. Production rose 18.4 percent from a year earlier.

Gerdau, Latin America’s biggest steelmaker, rose 88 centavos to 29.78 reais. Usinas Siderurgicas de Minas Gerais SA, Brazil’s second-biggest maker of the metal, rose 3 percent to 62.72 reais, while third-biggest Cia. Siderurgica Nacional SA added 2.3 percent to 36.49 reais.

Manufacturing Rebound

Japan’s largest manufacturers became the least pessimistic about the economy since 2008 as a global rebound drove demand for exports. The Tankan index of sentiment rose to minus 14 in March from minus 25 in December, the fourth straight gain, the Bank of Japan said in Tokyo today.

Commodity Rally

Vale SA, which gets about two thirds of its sales from Asia, rose 0.6 percent to 49.86 reais. Petrobras climbed 1.1 percent to 35.76 reais. Crude oil surged to a 17-month high on signs that global economic growth is accelerating, bolstering optimism that fuel consumption will increase this year. The Bloomberg Base Metals 3-Month Price Commodity Index increased 0.8 percent.

Duratex added 26 centavos to 15.61 reais. Wood panel prices will likely increase on growing demand and “relatively tight” supply, Josh Milberg, an analyst at Deutsche Bank, wrote in a note. He raised the Sao Paulo-based company to “buy” from “hold.”

Index Changes

PDG Realty SA Empreendimentos e Participacoes led gains on the Bovespa index after exchange owner BM&FBovespa SA said the real estate developer may have its weighting in the measure increased.

Brasil Ecodiesel Industria e Comercio de Biocombustiveis e Oleos Vegetais SA and Agre Empreendimentos Imobiliarios SA, which BM&FBovespa SA said may be added to the index next month, helped lead gains on the IBrX index of the 97 most-traded stocks in Brazil, jumping more than 2 percent each.

The Bovespa trades for 13.8 times analysts’ 2010 earnings estimates, compared with 15.9 times for Mexico’s Bolsa and 17.5 times for Chile’s Ipsa. The IGBC Index in Colombia is valued at 21.5 times profit estimates, Bloomberg data show. The Bovespa index trades for 17.8 times the reported profits of its companies after fetching 25.5 times in November, the most in almost six years, according to weekly data compiled by Bloomberg.

Brazil Raises Tariffs on 102 U.S. Goods in WTO Fight

(Bloomberg) -- Brazil will raise tariffs on 102 U.S.-made products, including cars, boats and chewing gum, for 365 days in retaliation for subsidies paid to U.S. cotton producers, Trade Minister Miguel Jorge said.

Acting on authorization by the World Trade Organization, Brazil will raise levies to between 14 percent and 100 percent, according to a list published today in the government’s Official Gazette.

The Geneva-based WTO in August ruled that Brazil may impose $294.7 million annually in sanctions on U.S. imports because the cotton subsidies violate trade regulations. The amount is the second-biggest ever authorized by the organization.

Brazil may take additional measures, according to the Gazette. President Luiz Inacio Lula da Silva’s government will also seek to impose as much as $270 million in intellectual property sanctions, Marcio Cozendey, head of economics department at the Foreign Ministry, said Feb. 9.

The U.S. has 30 days to negotiate a bilateral agreement with Brazil and avoid higher levies, Foreign Minister Celso Amorim said March 3 at a news conference with U.S. Secretary of State Hillary Clinton in Brasilia.

Goods now subject to higher tariffs include refrigerators, medicine, personal care products, methanol, raw cotton, auto parts, earphones, speakers, refrigerators, plastic furniture, some ovens and sunglasses.

Agricultural goods sanctioned include pears, raisins and potatoes.

Brazil Buyout Firms Have $9 Billion in ‘Dry Powder’

(Bloomberg) -- Buyout firms are poised to spend $9 billion in Brazil on everything from infrastructure to oil exploration as the economy recovers from a recession, the nation’s private equity and venture capital association said.

Grupo Santander Brasil and San Francisco-based Paul Capital Partners said they may purchase stakes in companies that will benefit from the country hosting the World Cup in 2014 and Olympics in 2016. Axxon Group in Rio de Janeiro said it is considering firms that supply the oil, health care and media industries. Carlyle Group, the world’s second-largest private equity firm, plans to invest $1.2 billion in Brazil in five years, said a senior associate, Daniel Sterenberg.

“The investment environment is probably the best in 20 years,” Geoffrey David Cleaver, who runs a $500 million private equity infrastructure fund at the Sao Paulo unit of Santander, Spain-based Banco Santander SA, said at an event last week in New York hosted by Abvcap, as the Brazilian association is known. The fund has committed 90 percent of its capital while disbursing about 65 percent, he said.

Latin America’s largest economy is luring investment after policy makers provided 100 billion reais ($55.3 billion) in stimulus and cut the benchmark interest rate five times to a record low of 8.75 percent to pull the country out of a recession.

Investment Rises

Foreign direct investment will jump 74 percent this year to $45 billion, matching the record in 2008, as the country builds houses, subways, railroads, roads, hotels and stadiums for the soccer and Olympic games, the central bank said. Economic growth may accelerate to 7 percent in 2010, Goldman Sachs Group Inc. Chief Economist Jim O’Neill said at a conference in Rio de Janeiro on Feb. 22. That would be the fastest pace since 1986, according to the International Monetary Fund.

“Companies are looking for capital because they see growth coming and don’t want to miss out,” Nick Wollak, who oversees $150 million in private equity for Axxon, said in a telephone interview. “We are now seeing some of the strongest and broadest deal flow pipeline since our fund began in 2001.”

While buyout funds in Brazil raised at least $10 billion by the end of 2008, only 10 percent of that was spent last year, Luiz Eugenio Figueiredo, the president of Abvcap, said in a telephone interview from New York. Investors were reluctant to commit as the global financial crisis choked off growth in the country, he said.

‘Dry Powder’

“We have plenty of dry powder in venture capital and private equity,” Figueiredo, who is also chief operating officer for Sao Paulo-based Rio Bravo Investimentos, run by former central bank President Gustavo Franco.

Target companies are demanding higher prices because they are aware private equity firms are loaded with cash throughout Latin America, said Mark Mobius, who manages $34 billion in emerging market assets at Singapore-based Templeton Asset Management Ltd.

“The word is out that there are considerable amounts of money looking for a home so the sellers tend to ask for high valuations,” Mobius said in an e-mail response to questions after returning from a trip to the region last month.

Valuations of publicly listed companies have also risen, sending the price-to-earnings ratio of stocks in the Bovespa index to 19.3 times reported earnings from 12.06 times a year ago, according to data compiled by Bloomberg.

Capital Group

The pickup in purchases already has begun. Los Angeles- based Capital Group Cos.’ private equity unit bought an undisclosed stake in Grupo Ibmec, which owns colleges in four Brazilian states, for 130 million reais, the university said last month. Cia. Energetica de Sao Paulo, the state-controlled utility known as Cesp, is considering selling a stake to a private equity firm, Relatorio Reservado newsletter reported Feb. 24. A telephone call to Cesp’s press department for comment wasn’t returned.

New York-based JPMorgan Chase & Co., the second-largest U.S. bank by assets, has been in talks with Arminio Fraga about buying a minority stake in the former Brazilian central banker’s fund company Gavea Investimentos Ltda., according to a person with knowledge of the matter. Darin Oduyoy, a spokesman for JPMorgan, declined to comment. Fraga didn’t return calls seeking comment.

Pension Funds

Duncan Littlejohn, who manages $1.6 billion in global private equity funds at Paul Capital in Sao Paulo, said he expects pension funds to step up investment after Rio de Janeiro-based Petroleo Brasileiro SA made the largest oil discovery in the Americas in the last three decades.

Brazil eased restrictions on pension funds last year, increasing the limit on non-fixed income investments to 70 percent from 50 percent of their more than 450 billion reais in assets.

Carlyle, based in Washington, is in preliminary talks to buy two more companies after purchasing a majority stake in tour operator CVC Brasil Operadora e Agencia de Viagens SA, Sterenberg said in a Jan. 7 interview.

Axxon may test the initial public offering market this year with Mills Estruturas e Servicos de Engenharia SA, a Rio de Janeiro-based maker of scaffolding and concrete forms for construction in which it owns a 14 percent stake, Wollak said.

“For both multinational strategic investors and private equity firms, Brazil has become a place where you have to have exposure going forward,” Wollak said.

Of the about 400 companies with private equity investment in Brazil, about 30 percent are likely to have an IPO in the next five to 10 years, said Thomas Tosta de Sa, chairman of the advisory board for Abvcap and Brazil’s chief regulator from the end of 1993 to 1995.

“These companies are going to come to market and they have a tendency to perform better than other stocks,” said Tosta in a telephone interview from Rio de Janeiro.

Brazil's Embraer to Build Jet Factory in Florida

Embraer, the world's third largest aircraft manufacturer, announces it will build a "state of the art" manufacturing and sales facility at Melbourne International Airport in Florida.

The major components of the aircraft will be shipped in from Brazil, potentially through Port Canaveral, while other parts made in the United States will be transported to Melbourne via truck and train.

In Melbourne, the company will perform final assembly and prepare the aircraft for delivery. It will be the Brazilian-based company's first manufacturing facility in the U.S. The proposal would also allow Melbourne and Brevard County to continue to build its growing aviation niche, as the space shuttle program at NASA ends and creates a significant employment void.