Charts Of The Day

Foreign portfolio investment started to return to Brazil in March, following six consecutive months of portfolio investment outflow, in which a total of US$23bn fled the country, triggered by the EM-wide sell-off in September 2008. Indeed, the March-June 2009 period coincided with the rally in global equities, which saw US$6.3bn in portfolio inflows enter Brazil. This has been a welcome development after 'hot money' left the country as quickly as it had previously entered, marking the largest flight of capital from Brazil on record - even dwarfing outflows seen in the wake of the 1998 Asian financial crisis (see chart). This has underpinned the recent rally in Brazilian stocks, with the Bovespa equity making a remarkable recovery from its trough at the end of October, climbing some 77% by the end of June. Although a continuation of foreign portfolio inflows will be predicated on investor risk sentiment, we note that signs that Brazil is on the road to recover should keep portfolio flows stay buoyant going forward.

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