Where We’ve Been

In 2012, the Brazilian real was the worst-performing currency in the emerging markets when it declined 9% against the U.S. dollar. So far in 2013, the Brazilian real is one of the worst-performing currencies in Latin America.1 Why? In our view, due to a combination of tepid economic growth, persistently high inflation, fiscal largesse, and corruption, expectations for Brazil among international investors diminished and the credibility of the government came under scrutiny. As a result, international investors sold their positions, repatriated their cash and looked for better opportunities domestically.

Through the end of September 2013, investors have sold a combined $6.97 billion in assets ($4.73 billion in equities, $2.24 billion in debt) this year.2 Due to these negative investment flows and a decline in trade (commensurate with a decline in GDP), demand for the Brazilian real declined, resulting in a depreciation of the currency. In response to these outflows, the Brazilian Central Bank (BCB) announced in August that it would commit $60 billion to support the value of the currency through December.3