By Fabio Alves
July 1 (Bloomberg) -- Brazil’s real will keep rising after posting its best quarterly performance on record as signs of a recovery in Latin America’s largest economy lure investment, said former central banker Luiz Fernando Figueiredo.
The currency may advance to as strong as 1.8 per U.S. dollar by year-end from 1.9518 yesterday, said Figueiredo, the founder of Sao Paulo-based Maua Investimentos Ltda, a hedge fund that manages $300 million. That exchange rate would be the strongest since Sept. 22, a week after Lehman Brothers Holdings Inc.’s collapse caused global credit markets to seize up.
“The ability of the Brazilian economy to recover rapidly will support the real,” Figueiredo, who served as central bank monetary policy director from 1999 to 2003, said in a telephone interview from Sao Paulo.
The real rose 19 percent in the second quarter, the best performance since it was introduced 15 years ago, and is up the same percentage in 2009, the second-biggest gain among the world’s most-traded currencies. The real rallied as a rebound in the price of the country’s commodity exports, central bank interest-rate cuts and the biggest initial public offering in the world this year swelled dollar inflows.
Only the South African rand, up 23 percent against the dollar, has gained more among the 16 most-traded currencies this year. The real’s advance pares last year’s 23 percent slide that was sparked by the credit crisis.
Record IPO
Last month’s initial public offering by Cia. Brasileira de Meios de Pagamentos, the Sao Paulo-based affiliate of Visa Inc., “is a sign of investor confidence in Brazil,” Figueiredo said. The company’s shareholders are raising 8.4 billion reais ($4.3 billion), the Brazilian securities regulator said last week.
The IPO, which is a record in Brazil and the biggest in the world since March 2008, may spur other companies to raise capital through share sales, helping lure foreign capital to the country, Figueiredo said.
“There are other share offers in the works that may attract strong demand from foreign investors, especially because a rebound in the economy will also improve profits of the Brazilian companies,” he said.
The benchmark Bovespa stock index has gained 37 percent this year after a record 41 percent tumble in 2008.
Figueiredo’s real call is more bullish than the consensus forecast. The currency will weaken to 2 per dollar by year-end, according to a central bank survey of about 100 economists released June 29.
15-Year Anniversary
“This has more to do with the dollar climbing back against the euro and other currencies than any specific weakness in the real per se,” said Flavia Cattan-Naslausky, a currency strategist with RBS Securities Inc. in Greenwich, Connecticut. She predicts the real will end the year at 2.10 per dollar.
The real’s rally in the April-to-June period was the biggest quarterly advance since its debut on July 1, 1994. The government created the real, the country’s sixth new currency since 1986, to curb inflation that was running at over 5,000 percent a year. Annual inflation was 5.2 percent in May.
“With the support of all the reforms that took place, Brazil looks better in every economic aspect 15 years after the real was introduced,” Gustavo Franco, who helped design the 1994 currency plan as a central bank director, said in a telephone interview from Rio de Janeiro. “There’s a degree of enchantment among international investors with the Brazilian economy.”
Economic Recovery
Franco, who is now a partner at Rio-based Rio Bravo Investimentos, which manages $1.4 billion, said he expects the real to keep strengthening. He declined to provide a forecast.
Brazil’s gross domestic product shrank 1.8 percent in the first quarter from a year ago, less than the 2.8 percent median estimate in a Bloomberg survey of economists.
The economy will shrink 0.5 percent this year before rebounding to post 3.5 percent growth in 2010, according to the central bank survey. Figueiredo predicts a 0.5 percent contraction in 2009 and a 4.2 percent expansion next year.
“The Brazilian economy is rebounding faster than expected,” Figueiredo said.
To contact the reporter on this story: Fabio Alves in New York at falves3@bloomberg.net
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