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Brazil Markets: Huge Capital Flows Keep the Real Buoyant


China's Sinopec and America's Blackstone Group are just two investors aiming firehoses of capital at the hot South America market.

The Brazilian markets are still waiting for the end of the election but investment capital is continuing its torrent into the country. This flow of capital is forcing two-year highs in the Brazilian real.

The top story in Brazil today is that Chinese Sinopec is investing $7.1 billion into Respol Brazil. This represents the biggest investment ever by a Chinese company in South America. Sinopec will get a 40% stake for its billions and values Respol at $17.8 billion. This is significantly higher than the $10.7 billion estimate analysts made a year ago. Respol was considering raising money in the equity market but the large investment by Sinopec will allow Respol to abandon its equity offering.

Earlier in the week, Blackstone (BX) announced it was going to invest $200 million in Patria, a Brazilian private equity group. The move by Blackstone follows similar moves by private equity firms Carlyle Group, Warburg Pincus, Advent International, and Southern Cross.

Blackstone's Steve Schwarzman told the Financial Times, "In 10-15 years [emerging markets] will be almost half of the world's economy. The idea of not participating in half of the world's economy in a robust way seems like sort of deficient corporate strategy from my point of view, and frankly an illogical strategy." He went on to say that Blackstone is excited about entering Brazil because it offers stable growth and a growing middle class.

Moving on to Brazil's middle class, new estimates now call for Brazil's coffee consumption to surpass US consumption in the next 5 years. According to the Financial Times, coffee consumption is expected to jump to 19.3 million bags, compared to 13.2 million a decade ago. The US currently consumes 21.2 million bags.

Finally, on Monday Brazil's finance minister Guido Mantega said an "international currency war" has broken out. Mr. Mantega's comments came after central banks in Japan, South Korea, Taiwan, and China have all tried to push their currency lower as part of the race to debase and boost export earnings.

Mr Mantega said, "We're in the midst of an international currency war, a general weakening of currency. This threatens us because it takes away our competitiveness."

So far, Brazil has yet to take any action of its own besides intervening in the local currency market. I would say that this isn't a currency war yet, but most countries are rattling their sabers and have their guns loaded.

Further Reading:

Brazil and Sudan sign a $500 million sugar deal.

Brazil's bank workers are going on strike over pay.

Petrobras raises $70 billion in largest share issuance ever.

Brazil's August trade surplus missed estimates.

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