The American Charles Stewart, president of operations for the investment bank Morgan Stanley in Latin America, is convinced the number of foreigners flying business class to Brazil has increased. "There's no doubt it has grown. The flow of investors visiting the bank has gone up a lot over recent months and the curious thing is their profile has changed. Up until 2008, those who like cheap companies that are in difficulties used to come in greater numbers. Now, they all only talk about hitching a ride on economic growth," says Stewart, whose office is in a building on Faria Lima Avenue, Sao Paulo's financial center. The climate for multinationals operating in the country is unprecedented. The Brazilian subsidiary of the Nivea cosmetics manufacturer grew more than any other in the world in 2009, surpassing the company's rates in planet China. "Money to invest is not a problem. Headquarters has never been this enthusiastic about Brazil," says Nicolas Fischer, company president.
A new scenario for expansion
How expected economic growth this year can influence company results, the stock market and interest rates
After last year's slowdown, caused by the global financial crisis in 2008, projections indicate Brazil's economy shows signs of vigor and has a long period of expansion ahead of it. For common investors, concerned about what to do with their savings, that is equivalent to a weather forecast indicating sunny days. In a growing country, the tendency is for the unemployment rate to fall, the real estate market to remain heated and company profits to increase - the foundation for any consistent appreciation of the stock market. On average, the country's largest financial institutions believe in economic growth of 5.35% in 2010. According to data from Itaú Unibanco, Brazil's GDP will grow 5% per annum over the next ten years. Bradesco estimates this growth at 4.8%.
Stephen Dover
director of international investments at Franklin Templeton
"I won't be surprised if Ibovespa falls 15% this year - and then goes back up. These corrections are common in markets that grow in the midst of a turbulent scenario. Nevertheless, the investor should stay in the stock market and always look forward. The perspectives are still very positive."
What is the probability for these projections to be correct? Impossible and irresponsible to say. After the end of World War II, the World Bank made a list of what were, in its opinion, the emerging countries of Asia with the best chances for success over the following decades. The most promising nation in the ranking was Myanmar, followed by the Philippines, Indonesia and Thailand. Korea was relegated to a discouraging fifth place. In the 1980s, the Asian giant predestined to reach the top of the global economy was Japan. China - who still recalls? - was a synonym for backwardness. Therefore, caution is a must when trying to predict the future. That being said, it is a fact that expectations are a crucial component in economics. After all, there is a component of self-fulfilling prophecy in many areas of human behavior. If everyone is convinced of a golden future, companies invest, people consume and the chances for growth truly increase.
The projection made by Brazil's two most important private banks is especially relevant because there is an extra chance for self-fulfillment. When counting on a positive scenario, banks tend to lend more, thus becoming a driving force for the economy as a whole. "Expectations have not been this great since the end of the 1970s," says Octavio de Barros, head economist at Bradesco. The effects of this expectation can already be seen in real life. The utilization level of industry's installed capacity is at 83.8%, higher than the historical average. Retail sales are at a higher level than before the crisis. Family consumption has grown for 24 consecutive quarters when compared to the same period the year before. There was no drop even with the economic slowdown in 2009. This combination made it possible for Ibovespa to appreciate more than 80% in 2009. When analyzed according to the ratio between stock prices and company profits, Brazil's stock market is - still - not expensive.
Jim O'Neill
head of the economic research department at Goldman Sachs and author of the term BRIC
"The biggest threat to the global economy is the American government's plan to restrict bank activity. If the proposal moves forward, banks will probably become even more conservative in granting credit."
Between the present and a more exuberant future, there is the challenge to increase investments and a long path filled with situations of risk - which investors must take into account. The big question is still the pace of the recovery in the USA. The country's economy grew 5.7% in the last quarter of 2009, much higher than expected and final sales - seen as an important gauge for demand - increased 2.2%. Nevertheless, the accumulated GDP for 2009 had its worst result in more than 60 years. A new recession in the United States would certainly make economists recalculate their prognosis for Brazil - and it could completely change investment strategies. In an attempt to avoid a depression, the American government flooded the economy with 3 trillion dollars - equal to almost two times Brazil's GDP. Several governments followed the same path, although in lesser proportions. According to Robert Johnson, director of the Institute for New Economic Thinking, an entity created by investor George Soros, the big question for 2010 is when to remove the stimuli. "If governments remove them too quickly, they run the risk of aborting the rebound. If they take too long, they can fan inflation," says Rodrigo Azevedo, former director of the Central Bank and partner at JGP, a Rio management firm.
Paulo Corchaki
director of fund management at Itaú Unibanco
"The stock market is not expensive and stocks tied to infrastructure have positive perspectives. But, due to elections and uncertainties abroad, 2010 may bring a lot of volatility to the stock market. And it is precisely in the downturns that the investor will find good opportunities."
The proposal by American President Barack Obama for stricter regulations of banks is another factor with potential to derail American recovery. "If the plan moves forward, banks will probably become even more conservative regarding granting credit," says Jim O'Neill, author of the term BRIC and head of the economic research department at Goldman Sachs, one of those that will be most affected if American Congress follows Obama. A crisis of large proportions in China, the main destination for Brazilian exports, could also toss the global economy into rough waters. Recently, the aggressive expansion of credit reinforced suspicions of a speculation bubble in the real estate sector. "Chinese growth has lasted several years, and a time will come when the country will suffer a setback," says Kenneth Rogoff, professor of economics at Harvard University (see interview on page 28). The list of concerns also includes insolvency in European countries - an issue that gained prominence when Greece's precarious fiscal situation came to the surface in 2009.
Almost no one discards these risks, but a positive scenario is still considered the most probable. That does not mean the stock market will go on an uninterrupted high. The erratic performance of the exchanges in January - Ibovespa reached 70,729 points in the first week and closed the month at 65,401 - is proof of that. Foreign investors were the most responsible for this fluctuation. When they left, the dollar went up. "Despite the positive scenario for the Brazilian economy, volatility shall persist," says Fabio Moser, director of investments at Previ, the country's largest pension fund, with 142 billion reais. "That should be the trend due to external uncertainties and the election calendar here," says Paulo Corchaki, director of resource management at Itaú Unibanco, which has nearly 200 billion reais to invest. It is true that no one will be surprised if the presidential dispute influences the exchanges. Any declaration in the sense of changing economic policy has the potential to sour investors' moods. The same should happen if the government disturbs the Central Bank's independence during a year when most economists see the need to increase interest rates.
Octavio de Barros 
head economist at Bradesco
"The crucial dates for Brazilian economists this year are March 11, when 2009 fourth quarter GDP results are released, and June 8, announcement of the first quarter for 2010. These will be important dates for reassessing the scenario, which, in general, is positive. We predict growth of 6%."
One who best summarizes how investors think is Stephen Dover, director of international investments at Franklin Templeton and responsible for nearly 20 billion dollars in emerging markets: "I won't be surprised if Ibovespa falls 15% this year - and then goes back up. These corrections are common in markets that grow in the midst of a turbulent scenario. Nevertheless, the investor should stay in the stock market and always look forward." Uncertainties aside, we are back to a year of growth - and strong growth. Good for Brazil and good for investors. In the next 28 pages, EXAME offers a detailed flight plan to help the investor on this journey.