Brazil?s currency Real rose after larger-than-forecast foreign direct investment last month spurred speculation that the $1.3 trillion economy will attract capital amid the global recession.
Latin America?s biggest economy registered $8.12 billion in foreign direct investment in December, its second-biggest monthly inflow. The result was more than twice the $3.1 billion median estimate of economists surveyed by Bloomberg, and pushed the annual inflow to a record $45.1 billion for 2008.
?The result was very good, a positive surprise amid all the negative factors on the international scenario,? said Marcelo Voss, chief economist at Sao Paulo-based brokerage Liquidez Corretora. Altamir Lopes, head of the central bank?s economic research department, said foreign investors are ?looking at the fundamentals of Brazil?s economy and are seeing positive perspectives.?
Brazil had its highest monthly FDI in June 2007, when the country received $10.3 billion in foreign direct investment. The total for the year 2008 was the highest since Brazil began keeping records in 1947, the bank said.
The inflows to Brazil is in sharp contrast to the global trend as foreign direct investment fell an estimated 10% in the developing world in 2008 and will cool further this year, the United Nations said in its 2009 outlook. FDI, which typically involves spending on plant and machinery or the purchase of a controlling interest, accounted for 38% of inflows into emerging markets in recent years, compared with 10% for investment by funds and 54% for loans, according to Morgan Stanley estimates.
Some $67 billion was pulled out of emerging-market equities and bonds funds in 2008, after net inflows of $62 billion the previous year, according to EPFR Global, a Cambridge, Massachusetts-based research company. The outflows eased this year as the funds took in $4.29 billion in the first 14 days of 2009, the data shows.
The negative global trends are expected to accelerate as Foreign direct investment in developing nations will drop by $180 billion, or 31%, this year as a global recession prompts multinationals to cut spending on factories and mines, according to the World Bank. ?This is the most serious reaction so far to the global recession, the factory level,? Dailami, who joined the bank in 1986, said in an interview in Washington. ?Most emerging-market currencies are already under pressure and this tendency will continue. In 2008, it was a stocks and portfolio story. This year, it will be an FDI story.?
The World Bank estimates that foreign direct investment in developing countries will shrink to $400 billion this year from an estimated $580 billion in 2008, according to Dailami, author of the lender?s annual Global Development Finance report.
?(with inputs from Bloomberg)