Miami-based, fund manager Bret Jensen has recently written an article explaining why he is avoiding long investments in Brazil’s stock market. In fact, he said he is increasing a short position in a leading online retailer as he thinks the country is heading for an economic contraction.

Here are his 10 concerns about the “country of the future” as he puts it:

  1. Yesterday Brazil’s central bank sharply cut its 2012 GDP forecast for the country to 1.6% from 2.5% previously.
  2. The country is a large exporter of commodities (iron, soybeans) to China. It is very dependent on these flows to China and the Middle Kingdom is slowing.
  3. Chevron (CVX) and Transocean (RIG) are facing $20B in civil lawsuits around a 3,600 barrel (no, this is not a misprint) spill far offshore. This is having a chilling effect on direct investment in the oil industry and crimping Petrobras’ (PBR) exploration plans.
  4. It is not only Chevron and Transocean that are facing the wrath of the country’s officials. Brazilian authorities have detained the head of Google’s (GOOG) operations in the country after the company failed to heed a court order to take down YouTube videos criticizing a local-election candidate.
  5. I have several friends in fund management and commercial real estate that travel to Brazil frequently. One of things they consistently discussed about Brazil is the fact that half the population is illiterate, yet it is more expensive to go out to dinner/clubs in Sao Paulo than Miami by roughly double. Feels like an indication of a bubble to me.
  6. Although the country has made great strides in reducing poverty in the last decade, it still has a long way to go. 8.5% of the population lives on about $1.50 per day, and over 20% lives below the poverty line.
  7. Other than Embraer (ERJ), it is hard to find one non-commodity based firm that is world class within the country.
  8. Their manufacturers are protected by steep tariffs, so they are inefficient as they have historically faced no real competition. Quick, name one Brazilian car maker? Tech company?
  9. The country is starting to address some of its infrastructure needs, but the overall infrastructure in Brazil is substantially below those of developed countries (104th out of 118 countries in one study) and correcting this may take much longer than the government is estimating.
  10. Major banks like Banco Bradesco (BBD) and Itau Unibanco (ITUB) are selling at roughly 2 times book value…kind of like our banks in 2006 when they were fueled by a similar construction boom….now they sell for less than book value.

Source: Seeking Alpha

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24 Responses to Fund Manager: Here are 10 reasons why I’m no longer investing in Brazil

  1. tom says:

    best top 10 reasons list i’ve seen in a while, usually half of the reasons in these kind of lists are bs

  2. sm says:

    Nearly all of these reasons are old news, and half of them are actually opportunities to find good investments in Brazil – it just make take a little more digging than buying the Bovespa.

    Reason 5 is just plain wrong – the literacy rate in Brazil is 89% according to the CIA World Factbook and while living among the very upper class in Sao Paulo (which visiting fund managers inevitable do) is expensive, it is nowhere near double that in Miami or NY.

  3. jayme says:

    half the population is illiterate <- hahahaha, well, it depends on what kind o illiterate he is talking about..

  4. jayme says:


    perfect comment.

    instead of watching through the negative side, maybe he should see all those “deficits” as opportunities. thats what people should definetly exercise more..

    -> is there high iliteracy ?
    lets build private schools to monetize on the poor federal services..

    -> is there poor infrastructure ?
    lets raise money throught private equity firms and pave the country..

    and so on..

    where you see a problem, a good investor sees a gap of oportunity!!

  5. Joseph Armagh says:

    He should concentrate on his country and the issues facing the dollar. The USofA is bankrupt, the dollar is being discredited, freedom has evaporated and his president uses the constitution as toilet paper. Oil spills? WFT is this guy talking about? So whenever a crooked company does something wrong the country needs to accept because of investors? What a joke dude. Miami based fund manager? Even a greater joke. Probably Brazilian “stolen” money is what fuels his fund : )

  6. Alex says:

    I agree, but 6 out 10 reasons ( 2,5,6,7,8,9) were also accurate and even worst 3 years ago when all fund managers advised to invest in Brazil..

  7. alexNY says:

    You really should check out how much money have already gone into infrastructure in brazil and nothing was done , Corruption is the main problem , put more money in and all you will see is that public officials will start buying new private jets , boats, ferraris and houses in miami/monte carlo

    Forget about brazil , 99% of politicians are super corrupted and 99% of corporations don’t even know how to operate in a world without corruption,.

    If a corporation is doing well there is becouse it knows who and how to bribe, .not becouse it is good at what it does

    Get a public official in you pocket then you get BNDS to give you all the money you want to buy cars , plains, beach houses girls , that is the reality

    Elke batista is really good at that , go and check in whose name was the 1/5 miliian dollar mercedes that Thor ( elke’s son) destroyed after killing a cyclist on the road ,im sure was bought by a corp with BNDS money(tax payer money)

  8. samuel says:

    Jayme. You pointed the crux of the matter INVESTING IN BRAZIL. We are a rich country with territory, minerals, population. Why not offer investment opportunity?
    Answer: Laws. The cultural thinking that led to laws. The statist thinking. The omnipotent bureaucracy. The bureaucratic justice. The social and labor laws.
    Just to take one of your items: “lets build private schools to monetize on the poor federal services” Try to do it. After embarking on a tortuous bureaucratic path and become operational, congratulations! You became fodder for the Brazilian bureaucracy. To take your part away you have to act as villain. Pay bribes, hide results, transferring illegally, still subject to a judge’s there from Matogrosso decree your prison! That’s what you’re investing for, fuel for lust or vanity of a bureaucrat.
    Suppose you survive it. Morally and financially. You then enter a Brazilian bank.
    The highest rates of services in the world. Incredibly high if compared with the current minimum wage. And if you use the money from the bank at interest rates of 200% per year.? ARE THEY SMART?

  9. Wolfgang says:

    “where you see a problem, a good investor sees a gap of oportunity!!” – I encourage you to act on your believe!
    Jensen forgot some points: corruption and lack of reliable law.
    “lets build private schools to monetize on the poor federal services” … Ahm, have you ever been in Brazil? Where I live in Rio, there are more private schools than public. The point is: Those who need it badly cant afford any.
    “pave the country” – the quality of work is simply a nightmare. You are a dreamer! Forget about your entrepeneur plans here. You wont gain any contract unless you know one of the big dogs. And then you will go the path of all: deliver worst quality because that creates more work fixing the problems.
    And, yes, sad to say: Illiteracy is quite common. Perhaps not 50% but about 30% for sure. But even those who know to read – they just dont work well.

  10. jayme says:

    wolfgang, samuel, alexny,

    okay.. i have to agree with you all . :(

    sad reality you pointed out.

  11. Thomas B. says:

    Well, Brazil is not like that just now, it has being like that for many decades, and people, specially Brazilians, become filthy rich in this environment, why?
    Because they learn the 1st and most important rule: in Brazil, you will make money taking advantages of its huge disadvantages.
    First world investors don´t realize that because they are used to operate in “perfect” markets, like the US. The advantages(infrastructure, simple regulations, small government) makes them richer there. They should learn with the rich Brazilians.

  12. Julio says:

    I speak European Portuguese but tecnically speaking while im in brazil i have to speak a brasilian dialect kind of language in order to communicate with locals…in my opinion AT LEAST 50% of brasilian individuals who show up on goverment statistics with knowledge to read and write are analfabetos funcionais…heres an example you can find on the web:

    foccusing on the article only, agree 100% with the author.

  13. mm says:

    Foreign investors have no chance in the realm of the established Brazilian business culture. Economic (Credit) Growth in Brazil does exist, but to make money from it, you have to be on the inside, or you have to be on the outside, like China. Trying to operate on the fringes, like trying instill American social dreamism implied by the previous commenter is pointless in Brazil, as the locals’ dream rises and falls with the sun. But in Brazil, consumerism is still at such a low base, it is their unfortunate path to follow Western idealism by borrowing as much money as they can now, and hope things work out in the future. Well, confidence is HALF the battle!

  14. Joe C says:

    Great post… keep it coming brazilianbubble… Brazil is ridiculously expensive and inneficient right now! Even though i love the country… i dont see any good outcome from any kind of investment there. Best thing was to have invested there some 10 years ago!

  15. frank stein says:


  16. fabio says:

    I am sorry. I understand your reasons for not sending your speculative capital into Brazil, which is consistently different from investing in Brazil.
    I am an entrepreneur who decided to really invest in Brazil, generating wealth and employment… And I can say I am having excellent, excellent, results…. But that is coming out of a great deal of working, not speculation…
    Please, if you really believe in what you state, take your clients money to speculate in other markets… Sure there are a lot of better places for it nowadays…
    Also, as a rodeo, try to keep your job for at least 8 seconds after really leave your positions out of Brazil, genius….

  17. SALAZAR says:


  18. ana says:

    as a middle class student i can assure you that going out for dinner / clubbing is more expensive in Rio or São Paulo than NYC or Boston, comparing the same quality/type of establishment…

    heck, even a room goes for roughly the same price!

    But if your family monthly income is above $145 you are considered as part of the 40 million people who recently entered the middle class group…

  19. jasonbrus says:

    mega ditto. i thought Brasil’s infrastructure, while not on par with Korea, Singapore, Hong Kong, is similar to Thailand, Malaysia. NOT! Malaysia, Thailand’s highway system is as high quality as our AZ, TX. Brasil’s is like back country dirt road. Brasilian govt. does spend money on infrastructure, but due to corruption and cultural reasons, things never get done. take Rio de Janeiro “metro” system for example. in the last 15 yrs, they only added two stations. in asia, they built two (not one) subway systems with the same amount of time.

  20. jasonbrus says:

    you did not mention EVEN AT HIGHER PRICES, you don’t get the same quality due to poor infrastructure. (although the food is definitely way better). a 5 star hotel in brasil is at best 3 stars in US but you have to spend 5 star money.

  21. Rene Casa says:

    There is a much simpler reason not to invest in Brazil: Inefficiency:
    10% Of the population is busy robbing the remaining 90%
    10% are occupied protecting the 90% (Police, guards, security systems for houses, cars etc.)
    10% are waiting at the bus station, in the hospital, at a cartorio etc. etc.
    So: 30% do not produce anything at all.
    Of the remaining 70% a big chunk works in construction. Another inefficient industry. Planning an execution of any civil construction in Brazil is below any industrial standards. Most of the projects are never finished, all cost many times more than projected and are delayed by years and decades (Bad examples available).
    The industry produces mainly crap; this due to poor labor education and antique machinery. The only, absolutely ONLY exception is the agriculture industry with its commodities and mining.
    Has a country a bright future with these 2 sectors? No; not only not bright; NO future at all.

  22. Rogerio Silva says:

    This is a very interesting discussion. If I was a foreigner I would agree with the article: Brazil is hard to understand and it is difficult to put money on it Portuguese legacy of a strong government is to hard do accomplish. Too many rules and laws, that favors corruption.
    But in other side, as a Brazilian, I see a economic and social improvement in the last few years. OK, large part of it came from China, but we also trade with USA and Europe. We have increased commerce with Latin America, Arabic and Asiatic countries. Brazilians have a strong presence in Africa.
    And at least the world won´t stop to eat. Few countries have the natural resources that Brazil has: sun almost all the years, crops that can be cultivated twice a year, non-polluted energy sources, vast oil and mineral fields to be explored. They are commodities, but the world still needs them. More or less, but they still need the.
    And we see an increasing concern about people´s education: Brazilian parliament is discussing a substantial increase in education budget.
    Well, this will take a long time to mature – but we can see that things are happening. Perhaps not so fast that a foreign investor wants, but we are slowly improving. Finaly I must say – bankruptcy is fast; but improvement is almost always slow.

  23. Bo says:

    In two weeks, I’m going back home, to the U.S., after 13 years in northeast Brazil. My partners and I have spent 3 million US since 2004. I’ve managed to sell my home and barely got what we spent in building it. Our beachfront construction projects, approved by city hall in 2005, we’re still lacking several approvals.

    The increase in prices, in everything, is scary. It’s twice as expensive, if not more, living here, than in a comparable US city, and here, if you want security or education, you need to contract it yourself, you want infrastructure, its simply not here, you want health care, you have to go to Sao Paulo at a minimum.

    With the tax structure, beaurocracy, labor laws, lack of investment in education as well as poor quality, poor level of or lack of enforcing laws with little to no judicial security, this place has a long way to go, especially when corruption is endemic. Not to mention it’s difficult to study the “numbers” here because most are simply not reliable. Not saying that there arent money making opportunties, but if there’s every been a place where “Buyer Beware” should be posted in big bold letters at Customs, it’s here.

  24. Tarik says:

    I am Brazilian…well, have been an expat executive for almost 10 years. So, here is my comment. You want to invest in Brazil, do it with a Brazilian partner with the expertise in that field. It has worked wonders for me in other regions of the globe also.
    You want returns without risk and without knowledge of your target market? Than you are dreamer ready for a bad surprise when the clock rings…not only in Brazil, but everywhere.

    Is the state a burden? Sure
    Is corruption omni present? If you are a gringo yes, if you are a national, you can avoid most of it. This also depends where you are doing business. Rio de Janeiro is very corrupt. South of Brazil is way better.
    Is infraestructure bad? Oh yeah! But try to travel the country side of Sao Paulo or go to Curitiba and you may change your mind.
    Is illiteracy high? Yes, but that doesn’t prevent Brazil to have executives of the caliber of Carlos Ghosn or engineers that can find very creative solutions.

    I am not saying to invest in Brazil, but most of the comments I saw here, including the one of the fund manager, are superficial at best.

    You want higher returns, you expose yourself to higher risks. Or you think you can get Monaco lifestyle for Calcuta prices?

    Below a small list of Brazilian companies with world class operation. Sure, most are commodity. But there are some good surprises. I am not endorsing any, but since the so-called fund-manager said they didn’t exhist, here they go:

    - Ambev (when the fund-manager drinks his budweiser, he is actually drinking an Ambev brand…);
    - Bradesco ( a bank with very good fundamentals. Didn’t feel a thing during the 2008 crisis and has an IT system second to none on the 1st world. In fact, many European and American banks use their system);
    - Brazil Foods (processed food. Very big group with worldwide presence in brands you wouldn’t suspect);
    - Embraer ( the guy mentioned this one already).
    - Fibria Celulose (paper. Huge operation);
    - WEG (when you buy your refrigerator, there is a big chance to have a WEG electric motor running it);
    - Braskem (chemicals);
    - Cielo (electronic equipment and processing for credit card payment. Yes, they use credit cards in Brazil)
    - Cosan (alternative energy – biodiesel, alcohol, etc)
    - Marfrig (meat. One of the biggest producers in the world. Owners of the biggest meat process plant in the USA if I am not mistaken;
    - Wilson Sons (navigation and logistics, with more tugboats than Crowley or Foss in USA and older than SMIT in Holland – 175 years X 170);
    - There are also retailers, other banks, steel mills with plants all over the world, etc.

    Is Brazil perfect? No way.
    Are there opportunities? If you are willing to make your homework and know your business, definetely.

    Hope this helps

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