Strong Investment in Brazil

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Strong foreign investment and growing exports in Brazil have pushed Brazil's foreign-exchange inflows to post strong net through over the past two weeks of January.

Net foreign-exchange inflows for Brazil were $5.19 billion in the Jan. 1-14 period, up from inflows of $95 million in the same period of 2010, figures produced by the Brazilian Central Bank. Based on previous foreign exchange results In 2010, Brazil posted net foreign-exchange inflows of $24.35 billion, down from net inflows of $28.73 billion in 2009.

The latest figures showed that Brazil's booming economy and towering local interest rates continued to be a siren's call to foreign investors in search of returns. January's inflows were once again led by portfolio investment, or cash entering the country to buy stocks and fixed-income investments.

Financial inflows totaled $3.97 billion in the first two weeks of January versus $816 million in the same period of 2010, the central bank data showed.

Brazil's exports, however, also picked up during the period after getting off to a sluggish start. Exports totaled $7.37 billion in the first two weeks of January, while imports were $6.15 billion. That pushed year-to-date trade inflows to $1.22 billion, the central bank said.

While foreign portfolio investments tailed off slightly at the end of 2010, the latest figures showed that recent measures to stem inflows and limit gains in Brazil's real currency have not had the desired impact.

In September and October last year, Brazil's government increased financial transaction taxes on certain investment inflows. Heavy investment-related inflows have pushed the real to gains of more than 30% against the U.S. dollar since the start of 2009. That's undercut Brazilian exporters, whose products become more expensive in the global market.

The outlook for portfolio inflows will continue to be strong, especially amid expectations that the Brazilian Central Bank will start a series of interest rate hikes later Wednesday.

The bank concludes its first meeting of the Copom rate-setting panel under new bank President Alexandre Tombini after markets close. The bank is expected to raise the benchmark Selic base interest rate by a half-percentage point to 11.25%.

In addition today, the central bank said that Brazil's reserves stood at $290.76 billion as of Jan. 14, including about $2.29 billion in foreign currency purchases for foreign reserves in the first two weeks of January which is a good for the Brazilian economy.

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