Sao Paulo Forum - May 23, 2013 Sao Paulo Forum - May 23, 2013
Sao Paulo Forum - May 23 2013

Former Central Bank Directors Focus on Selic and Brazilian Growth at EMTA Sao Paulo Forum

Speakers at EMTA’s Sixth Annual Sao Paulo Forum expected Brazil to underperform its potential with sluggish to moderate US growth.  The event, which took place on Thursday, May 23, 2013, was hosted by HSBC at its Sao Paulo headquarters.  100 market participants attended.

Pablo Goldberg (HSBC Securities USA Inc.) moderated a panel discussion after reviewing recent market themes.  Goldberg suggested that the EM could be characterized by a market comeback following earlier concerns over the direction of the US FOMC’s quantitative easing policy; data-dependent fixed income markets; support for growth and efforts to avoid any choking of the recovery ; and continuation of rate easing in most EM countries, with the notable exception of Brazil.

Goldberg asked speakers, most of who had previously served at the Brazilian Central Bank, if they were concerned about a double-dip.  Mario Toros of Ibiuna Investimentos replied that he foresaw gradual economic improvement, with moderate growth and a strong US dollar in the next two quarters.

In contrast to Toros’ assessment, Luiz Fernando Figuereido (Maua Sekular Investimentos) responded “I see the glass half empty; I have difficulty seeing where on earth we will have growth, though the US economy does look much better….but how does the US stock market continue to rise when the economy is lukewarm?”  Figuereido expressed concern that “each week we see surprising signs of lower growth,” before concluding that “low growth, not a huge recession” was the likely forward path.

Affonso Pastore (A.C. Pastore & Associados) expressed greater optimism in the US economy than that of Europe.  “We cannot expect a positive contribution from the EU; the debts of the periphery remain huge,” he commented.  Pastore listed a number of “unknown” factors such as the US FOMC preparing a withdrawal of its quantitative easing policy (“an area it has never navigated before”) and the future of China, where a new leadership has accepted lower growth rates.

Most Latin countries would continue to be commodity-dependent, opined Andre Loes of HSBC, though Latin American economic fundamentals had improved compared to previous decades.  Loes agreed that the exact level of the “put” on growth supplied by China was not quite clear, and warned that the US FOMC could enter into a rate-hiking cycle earlier than market consensus.

Several panelists expressed frustration that the Brazilian economy was underperforming its potential.  Pastore reiterated comments made at previous EMTA Forums on the need for economic reforms in order for Brazil to reach economic growth rates of 4-5%.  Taxation continued to make Brazil uncompetitive according to Figuereido, and devaluation of the BRL alone would not be enough to boost demand for Brazilian products.

The former Brazilian Central Bank directors were asked to comment on future SELIC rate hikes, and whether the market was over-hawkish in its expectations.  While several speakers demurred from providing specific forecasts, Pastore predicted hikes up to 8.75%, “I don’t necessarily agree with that, but I think that is what will be done.”  Loes’ prediction was for 100-150 basis points worth of rate increases.

EMTA FORUM IN SÃO PAULO
Thursday, May 23, 2013

Hosted by HSBC
HSBC Bank Brasil S.A. - Auditorium
Av. Brigadeiro Faria Lima 3064, 1º andar
São Paulo, Brazil

This event will discuss the global economic outlook, prospects for Brazilian growth, and investment opportunities in Latin America.

3:30 p.m. Registration

4:00 p.m. Panel Discussion
Opportunities in the Emerging Markets
Pablo Goldberg (HSBC Securities (USA) Inc.) - Moderator
Affonso Pastore (A.C. Pastore & Associados)
André Loes (HSBC Bank Brasil)
Mario Toros (Ibiuna Investimentos)
Luiz Fernando Figueiredo (Mauá Sekular Investimentos)

5:00 p.m. Cocktail Reception

Additional support provided by MarketAxess.