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Brazil's infrastructure needs more foreign cash, says EMD manager

Brazil's infrastructure needs more foreign cash, says EMD manager

Brazil’s need for major infrastructure overhaul is going to become increasingly reliant on foreign investors as the country shapes up to host a World Cup and a Summer Olympics.

That is the view of Marco Freire, Franklin Templeton’s CIO for Brazil fixed income and co-manager alongside bond star Michael Hasenstab and Laura Burakreis on the $6.5 billion Templeton Emerging Markets Bond fund.

The Sao Paulo-based manager said how the country copes with two major sporting events in the next four years will have major repercussions for how it is perceived by foreign investors.

‘I think the government understands the infrastructure need and is making some changes to promote investment, not only in the public sector but also with private investment,’ he said, in an investor note.

‘The government has pledged significant spending on infrastructure in the next three-to-five years, and it seems likely it will need to be funded to some degree by foreign investors.’

Emerging markets expert Jerome Booth previously told Citywire, Brazil would require upwards of $1 trillion of investment in its infrastructure.

Freire, who also discussed the difficulty in finding yield in Brazil, said the country is still a low-savings economy and achieving high levels of investment will therefore require increased involvement from external sources.

He pointed to one example of private investment in in the country, which has seen three of Brazil’s main airports become privatised.

He said: ‘We have investors from Argentina, from France, even from South Africa, that were interested in managing airports in Brazil and are bringing in money so that we can improve our airports here.’

Export

Looking at the current macro environment, Freire said they are aware of pressures from a slowdown in Chinese growth but stressed only 11% of Brazilian GDP is dependent on exports. He added that the country is more of a closed economy than many investors believe.

‘Of the big emerging market economies, Brazil is one where foreign trading is less important. And even if you look at the broader sample of all emerging market economies, Brazil ranks among the ones where exports are even less important,’ he said.

Brazil represents 5.97% of the Templeton Emerging Markets Bond fund country allocation, while the Brazilian real is 5.83% of the fund’s allocation by currency.

The Templeton Emerging Markets Bond fund has returned 85.64% over the past three years. Over the same period, its benchmark, the BofA ML Global Emerging Markets Sovereigns TR, has risen 74.44%.

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