“The world’s biggest money manager said Brazil must do all that it takes to maintain its investment-grade credit rating if it wants to remain an attractive destination for foreign capital,” Bloomberg reports.
Although BlackRock claims it wants to promote Brazil, most of its clients refuse to allocate towards this destination as the country remains at risk of being downgraded to high-yield junk.
Robert Kapito, BlackRock’s co-founder said the following during an event hosted by BM&FBovespa SA in Campos do Jordao:
Focus on credit quality and make sure to do everything that you can not to have a downgrade so that we can continue to promote Brazil as a great place to invest (…)
When I manage money for large institutions and for retail investors, they give me guidelines of how far down in the quality spectrum I can go (…)
So even though I may feel optimistic about the country, the guidelines don’t allow me to invest money if the rating is at certain level.
Moody’s rating agency, on August 11th, downgraded Brazil’s government bond rating to Baa3 from Baa2 (only one notch above a non-investment / speculative grade).
Moody’s explained the drivers of the rating change were as follows:
1. Weaker-than expected economic performance, the related upward trend in government expenditures and lack of political consensus on fiscal reforms will prevent the authorities from achieving primary surpluses high enough to arrest and reverse the rising debt trend this year and next, and challenge their ability to do so thereafter.
2. As a result, government debt burden and debt affordability will continue to deteriorate materially in 2015 and 2016 relative to the rating agency’s prior expectations, to levels materially worse than Brazil’s Baa-rated peers. Moody’s expects the rising debt burden to stabilize only towards the end of this administration.
Moody’s now rates Brazil in line with Turkey and India which is the same level as Standard & Poor’s. The latter rating agency downgraded Brazil in March 2014 and cut the outlook to negative in July.
Fitch Ratings grades the country one step higher, at BBB, also with a negative outlook, Bloomberg reports.
Also investors should take a note of what Nouriel Roubini thinks about the country:
Brazil should have been downgraded below investment grade last year, as the economy struggled with a widening fiscal deficit, a growing debt burden and a weak and worsening business environment.