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Where the nuts come from

Brazil. That’s what I would have answered if at the end of writing a certain book on a certain subject that might be an anagram of “merging meerkats”, you had asked me which of the emerging markets – oops – I would pick if I could only invest in one for the rest of my life.

While researching the Bric chapter of the book – which is now available in Kindle – seriously, how cutting-edge is that? – some commentators aimed to simplify matters by suggesting the four countries embody two of the globe’s most powerful economic themes. Thus, while China and India are two of the world’s strongest domestic demand growth stories, Brazil and Russia are both leading commodity exporters.

Certainly, the Bric concept involves two very populous countries that need constant and growing access to both hard and soft commodities, thus allowing the other two members of the grouping to profit over-proportionately in providing them and meaning the outlook for all four is increasingly interlinked.

But while, in themselves, such basic facts are undeniable, the idea as a whole rather crosses the line from the simplified to the simplistic. For one thing, Brazil not only enjoys access to huge quantities of natural resources, it also boasts a pretty compelling domestic demand story of its own. What could possibly threaten such a rosy outlook?

Oh yes – politics. More specifically, the end of eight pretty impressive years under the stewardship of president Luiz Inácio Lula da Silva and some nerves among investors – no, be fair, not just companies that have launched Latin American funds this year – as to the precise agenda of his successor, presumably Dilma Rousseff of Lula’s own Workers’ Party or Jose Serra of the Social Democracy Party.

Actually, if we are being fair, we should note investors are not nearly as worried as they were back in 2002, when concerns about the left-leaning Lula – and especially fears he would default on the country’s debt – led to Brazil suffering what one fund manager described to me as “more market-induced psychosis than a real crisis”.

The current bout of investor nonchalance – which will have no doubt collapsed should, by the time you read this, the likes of undersized-hat-wearing ’humorist’ Tiririca, with his slogan “It can’t get any worse if you vote for me”, have won a seat – looks down to one of two reasons.

More positively, it is because, not to put too fine a point on it, Brazilian politics has come of age. “What Lula has done is essentially take a lot of issues out of the political arena by saying they are now consensus,” Urban Larson, director of emerging equities at F&C Investments, told me. “He did not invent so much as maintain what was already in place but that was crucial. Until he did so, there was a lot of doubt as to whether his predecessor president Cardoso’s changes were permanent or not.”

For his part, Chris Palmer, head of emerging markets at Gartmore, highlighted how the standards for public leadership in Brazil have risen

ramatically. “I’m not going to offer any platitudes but Brazil’s leaders have made progress, that progress is tangible and they have put themselves under a lot more scrutiny, which has been part of their success,” he said.

“Even where they have been successful, Brazil is now advanced enough as a society that it can go back and question that success – question whether the country did things right or whether it needs to take another look, for example, at the oil industry.”

Alternatively, investors could simply be as wrong to be unworried now as they were to panic in 2002 – although, if we are being that cynical, we would also have to acknowledge too many vested interests probably now exist for the new president to veer too far from the path Lula has marked out.

Every bit as cynical as this column, Brazilians would for decades wryly observe that theirs was the country of the future – “and it always will be”. One would hope it would take the actual election of Tiririca and his tiny hat as president to prevent Brazil fulfilling its potential and taking its rightful place as a major player on the global economic stage.

Julian Marr is editorial director of www.marketing-hub.co.uk and www. thoughtleadershiplive.com

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