In 2010, Brazil’s middle class was growing, and employment rates were on the rise. This caused the nation to be hotly tipped as one of the strongest emerging market economies. However, by 2013, Petrobras, Brazil’s state oil company, began to report fiscal difficulties. In 2014, there were reports of corruption, and by January of this year, Petrobras admitted to losing $2B (USD) in a bribery scandal that implicated Brazilian President Dilma Rousseff. In August, financial analysts predicted that the next few years would continue to pose challenges to Brazil’s economy, making reference to past contractions, high unemployment rates, and depreciated currency. They could very well be right. However, it has emerged that 285 foreign M&A deals closed in October in Brazil, with foreign investors spending $4.2B (USD) in the country’s stock market. In other words, Brazilian companies are priced so cheaply that they are attractive to foreign investors who feel that there is scope for potential payoffs, as the prices can’t possibly sink lower than they are right now.
Brazilians themselves are wary about investing in their country’s companies, but certain foreign bargain hunters appear undeterred. New York-based Coty Inc. recently agreed to pay $1 billion for the beauty-care unit of São Paulo-based Hypermarcas, for example. Guilherme Ache of Brazilian investment firm Squadra Investimentos, warned that investors should certainly be cautious, but added: “Anyone buying a selective portfolio at current levels will make money. There’s no bell that rings when you reach a turning point in a bear market.”
Of course, there is still a huge amount of scepticism amongst foreign investors concerning Brazil’s economy. However, according to PricewaterhouseCooper, this is the first time since 2000 that foreign investments have surpassed local ones. Rogerio Gollo, partner and head of M&A in Brazil for Pricewaterhouse commented: “If you had asked me in January, I would not have told you this was coming […] The buyer who is looking at Brazil with a horizon greater than three years is getting a good deal.”