Japanese investors hope to tap the potential of Brazil

by Dave

Sao Paulo has the largest number (in excess of a million ) of ethnic Japanese outside of Japan
International Herald Tribune

Individual investors in Japan have ramped up their bets on Brazil, which may be one emerging market to dodge the global slowdown comparatively unharmed thanks to its vast natural resources and political stability.

Faced with an annual return of just half a percent on short-term deposits at home, Japanese investors are continually looking for higher yields elsewhere.

But analysts say the potential of Brazil is outweighing those concerns – despite a drop for the Brazilian currency, the real – because its economy, the largest in Latin America, is much better cushioned against external shocks than other resource-rich nations, which should allow it to recover faster when the current phase of global weakness has passed.

“Brazil stands out at a time when investors are poring over fundamentals,” said Takeshi Iio, a senior fund manager at Mitsubishi UFJ Asset Management.

The amount invested in Japanese toushin, or mutual funds, that focus on Brazil and Latin America nearly doubled to ¥879.4 billion, or $8.2 billion, as of the end of July from ¥484.3 billion at the end of last year, according to Reuters data. The amount invested in Brazil by toushin funds is even higher than the amount invested in China, and was surpassed only by the amount invested in India.

Brazil was given an investment-grade sovereign credit rating in April, opening the door to foreign investors whose funds restrict them from putting money into risky assets.

“Brazil puts priority in containing an economic bubble, and its moderate growth rate reflects its will to ensure sustainable and stable growth,” said Shuji Nishimura, an economist at the Japan Center for International Finance who specializes in Brazil.

Bradesco, the largest private-sector bank in Brazil, signed an agreement with Mitsubishi UFJ Financial Group in August to sell funds that invest in Brazilian assets to Japanese retail investors.

[A]nalysts said that Brazil’s vast natural resources, which have been bolstered by recent discoveries of large oil deposits, leave scope for self-sufficiency. They also noted that geopolitical risks in the country are low – the country has not been at war in more than a century – and the political horizon appears stable, with the current government set to remain in place until 2010.

Supply in resources will likely remain tight due to the long-term outlook of growing global population, urbanization of developing countries and robust domestic demand – which makes investment in Brazil rational even if there is the risk of the currency depreciating over the next year or so,” Iio said.