Sao Paulo, considered the most vibrating financial cluster in Latin America, has all that mega cities should be about – tantalising gastronomy, year-round business and cultural events, and of course 20 million people. “We have never seen more dynamic times for business” says Alvaro Vidigal, (known as Guti), of Socopa, a Sao Paulo based broker dealer.
As the home to 63 percent of foreign, and 38 percent of Brazilian companies – including 17 of the top 20 banks – Sao Paulo’s destiny seems to reflect Brazil’s own as a key destination for Latin American business. Brazil has been a promising Eldorado for a long time, but recently experienced more interest globally. This has been aided by the establishment of the BRIC ideology.
Since Brazil, Russia, India and China have been lumped together under BRIC many have discussed the convenience and importance of the umbrella term. A great deal of rhetoric, diplomacy and politics set aside, one must look at essential differences and similarities the countries offer each other.
Critically speaking, Russia’s dependence on oil; the rivalry across the Indian Ocean involving India and China, and Russia and China competing in Central Asia there may seem to be a few aggresive aspects. China, as a key importer, doesn’t exactly sit at the same table as Brazil and Russia. Brazil cannot be said to share an eastern cultural background with India or China, nor does the South American nation expect India and China to make a joint-venture proposing a new Doha round.
Nevertheless, BRIC does share a growing self-confidence, an increasing role in world markets, and demand for greater say in global policy-making. On top of recent economic performance, the BRIC countries are also trying to take the lead on post-crisis recovery economics. Brazil’s GDP is growing faster than the Latin American average, and will be back to pre-crisis levels by 2010. As BRIC contributes about 20 percent (15 percent in 2000) of world output, it is easy to identify the importance of the nations to world recovery. Of course, a lot of what happen depends on how the BRIC economy might outgrow rich countries, which depends on decoupling.
Decoupling implies a lack of synchrony between BRIC and rich countries’ economic cycles. This lack of synchrony was placed under the spotlight by the 2008 crash. Many market analysts argue that greater globalisation should bring greater synchrony. Whereas in the first weeks of the crash, many nations experienced dramatic meltdown, which was not felt so much across BRIC, allowing for much faster recovery. Greater synchrony was indeed found among rich countries, but not in comparison to BRIC economy. As unforeseeable economic indicators may be, decoupling is making its mark as a risk diversification factor.
Considering this and BRIC internal diversification, a number of global leaders are taking a closer look at the Brazilian financial industry. And they should.
After years of struggling against inflation and recession, Brazil did its homework in terms of orthodox economics and reliable monetary policy. Years of high inflation rates and – still present though not so outrageous – interest rates forced the Brazilian Central Bank into developing a very efficient, real time, gross settlement system that is now one of the most advanced cash transference and settling systems in the world. Acting as full permission custodian, clearing and settling for foreign investors in Brazil, Socopa can take full advantage of the central bank online system when settling FX or clearing for over 20 broker dealers.
But as foreign investors are most welcome to play in very good conditions in Brazil, including incentivated tax treatment, Brazilians face a much more rigid system if they want to go abroad. “Brazil is more open to foreign investors and financial players than for Brazilian capital going abroad. This is about to change, and a big movement is expected when Brazilian capital searches international markets and products,” continues Vidigal, explaining how Socopa is planning the infrastructure and building partnerships with foreign clearings, banks and brokers in order to organise such flow.Strict leverage and capitalisation rules helped Brazilian banks survive the financial turbulance witnessed in late 2008. Socopa, in business for over 40 years, expects to collect recover well, and has already established itself as ready to perform exceptionally. The last six months has raised expectations, as clients expect more efficient ways to execute, clear and act in prime brokerage. Much tougher competition compared to 2008 fair weather requires sharper service for even more aggressive rates.
Covering 47 percent of South America, 180 million consumers in the internal market Brazil still lacks the sophistication of international standards. Far from ‘toxic’ derivatives or oversecuritisation, Brazil is over-collateralised, but keen to try new products and financing methods.
Local institutions have a long tradition of helping foreign investors. Fully electronic, the BM&F Bovespa has shown an increasing market share of non-residents, side by side with electronic order routing. Most of Socopa’s foreign clients and partners rely on the firm as a traditional, experienced advisor for regulation and market practice understanding. This is necessary as foreign capital markets penetrate the Brazilian economy.
Many predict that huge deep sea oil fields will certainly boost economic growth over the next decade, bringing wealth to different sectors of Brazilian society. Unsurprisingly, financial markets are expected to play a determinant role organising such flow. IPOs, M&A, securitisation, hedging, risk management and debt financing are activities that shall be greatly benefited by international expertise and product diversification.
Brazil dependency being lower than 15 percent of GPD, commodities trading is still bound to encourage futures and derivatives trading. Greater liquidity and efficiency within agriculture will allow foreign companies to help Brazil’s natural role as a supplier of goods worldwide.
BM&F Bovespa has just converted futures floor trading into fully electronic market. This is set to boost the volume of trades, as it did in equities’ trading a few years ago. Even then, few brokers such as Socopa took the lead in investing in speed and reliable trading technology. For most brokers linked to international or major Brazilian banks, electronic trading improved proprietary trading activities. For Socopa, an agency only broker, it suited as a medium to service clients who were used to levels of speed and efficiency not found in Brazil a few years ago. Following Vidigal’s dynamic leadership, Socopa offers a complete solution to access Brazilian markets. Including unmatched execution, custody, prime brokerage, investment and private banking. The company may be the one-stop way to be part of Brazil’s promising, interesting and profitable times ahead.
The author of this article, Thomaz Teixeira, is associated broker at Socopa
For further information tel: +55 11 3299 2039.
email: thomazbt@socopa.com.br.
web: www.socopa.com.br
