Brazil Economy & Investment
Brazil' investment trusts attract increasing Japanese funds
Back in 2008, Roberto Nishikawa, senior managing director at Itaú, one of Brazil's biggest banks, told his staff he expected assets under management from Japan-ese retail investors in the bank's funds to rise tenfold by the end of 2009 to $5 billion (Dh18 billion).
"They told me I was crazy," Nishikawa says, with a smile. But the group has already collected $11.5 billion, giving it about half of all Japanese retail money invested in Brazilian real-denominated investment trusts.
It is understandable why Itaú saw opportunity in Japan. Japanese investors' passion for investing in Brazilian assets has grown rapidly since 2008, when brokerages started distributing Brazilian-real denominated funds to Japanese individuals. Prior to 2008 there were hardly any available.
Brazil is a rather new market for Japanese investors, making investment funds a more popular route than direct investment.
As of February, individuals held a record 2,050 billion yen (Dh80 billion) in investment trusts denominated in Brazilian reals, according to the Japan Investment Trusts Association.
Japan has become Itau's main overseas market on the asset management front, with Japanese retail investors accounting for 82 per cent of the $14 billion of assets held by overseas investors.
A large part of Brazil's attraction as a destination for Japanese investors is the interest rate differential. The meagre 0.1 per cent set by Japan's central bank provides a sharp contrast to Brazil's 8.75 per cent. Reflecting this, two-thirds of the assets invested in real-denominated investment trusts are in bonds.
Currency exposure
Many investors are also probably hoping to benefit from a stronger Brazilian real, which has gained 14 per cent against the Japanese yen over the past 12 months. However, they face having returns from their bond investments reduced or even wiped out if the real weakens significantly and the currency exposure is not hedged.
Another attraction is Brazil's status as an emerging economy with strong growth potential. Brazil's national statistics office last month said the economy is on course to grow at least 5.5 per cent this year on the back of strong consumer demand and a recovery in investment.
Purchasing power is also rising as more people move into the middle classes, Mr Nishikawa says.
"The fundamentals in Brazil look quite good," says Junya Tanase, a senior currency strategist at JPMorgan in Tokyo. "We expect Brazilian GDP to reach 6.2 per cent this year. This high level, coupled with high interest rates, is attracting the retail investor. It is easy to understand and there is the additional appeal of the World Cup and Olympics."
Brazil is hosting the Fifa World Cup in 2014 and the 2016 Olympics. The nation could benefit from the infrastructure and investment that these major events bring in the same way as Japan did when Tokyo hosted the 1964 Olympics.
The Japanese age group that can recall those days is now either retired or nearing retirement. This group has the highest level of savings and likes to buy investment trusts that provide monthly dividend income.
Source: gulfnews.com