{"id":17021,"date":"2019-10-02T09:05:39","date_gmt":"2019-10-02T13:05:39","guid":{"rendered":"https:\/\/www.benefitscanada.com\/news\/pension-podcast-challenges-and-opportunities-for-investing-in-brazil-136391"},"modified":"2019-10-02T09:05:39","modified_gmt":"2019-10-02T13:05:39","slug":"pension-podcast-challenges-and-opportunities-for-investing-in-brazil","status":"publish","type":"post","link":"https:\/\/blog.lifeinsurance-orleans.ca\/index.php\/2019\/10\/02\/pension-podcast-challenges-and-opportunities-for-investing-in-brazil\/","title":{"rendered":"Pension Podcast: Challenges and opportunities for investing in Brazil"},"content":{"rendered":"\n
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Martha Porado<\/span> | October 2, 2019 <\/p>\n

When investing in Brazil, what considerations should institutional investors keep in mind? And how can the market fit into a pension portfolio?<\/p>\n

One issue to watch is pension reform, said Heather Hagerty, a research analyst at Fidelity Investments, during the Canadian Investment Review<\/em>\u2018s podcast \u201cPension Podcast.\u201d<\/p>\n

\u201cBrazil is one of only a small number of countries that allows its people to retire based on the number of years that they contribute to the system and one of the only countries in the world with no minimum retirement age. In fact, most people in Brazil retire around the age of 55.<\/p>\n

Read: Geopolitical tensions high on investors\u2019 list when examining emerging markets<\/a><\/strong><\/p>\n

\u201cThis has caused immense pressure on the federal and state budgets, with pension spending absorbing over a third of the tax revenues,\u201d she added. \u201cAnd this is only expected to continue to rise as a share of government payouts. Now some Brazilians are retiring even longer than they contributed into the system. The system is also socially unjust with over half of this pension spending being taken up by the wealthiest fifth of the population and less than three per cent by those that are worse off.\u201d<\/p>\n

The Brazilian government understands the situation and has indicated it\u2019s taking the need for reform seriously, said Hagerty.<\/p>\n

If the system was reformed, it would be substantial for the country\u2019s growth prospects. \u201cBy extending the work life of Brazilians by as much as 10 years, this is going to have a large and material impact on economic productivity,\u201d she said. \u201cThere are some estimates that, by implementing a minimum retirement age of 65 for men and 62 for women, it could add as much as four million people to its workforce. This large increase in the workforce would be a positive supply shock to its labour market, which would increase growth for some time without wage pressure.\u201d<\/p>\n

Read: Are institutional investors about to dive back into emerging markets?<\/a><\/strong><\/p>\n

While institutional investors can access Brazil through its stock market, the main index, the Ibovespa, is filled with commodities companies and state-owned enterprises. It doesn\u2019t reflect a fulsome picture of the overall economy\u2019s potential, said David Souccar, executive director and portfolio manager at Vontobel Asset Management, also speaking during the podcast.<\/p>\n

In examining potential investment opportunities, investors should consider that while Brazil\u2019s corporate transparency is on a par with other emerging markets \u2014 and indeed has improved materially in the last 20 years \u2014 it still has a long way to go to be equal to a developed market, he said.<\/p>\n

Souccar also noted more active participation on the part of smaller retail shareholders will improve transparency for all market participants. \u201cAll institutional investors, including Canadian pension plans, will benefit from more active participation of local retail investors. It\u2019s difficult to motivate local regulators to improve corporate governance, corporate transparency, when the majority of investors in Brazilian equities today are institutional investors. Once retail investors start to get skin in the game \u2014 and I expect this to happen in the next five years \u2014 the discussion gets more political importance.\u201d<\/p>\n

Read: Which emerging markets should investors be considering?<\/a><\/strong><\/p>\n

With all this in mind, Souccar said he\u2019s still optimistic about Brazil. \u201cIt\u2019s one of our top destinations in terms of investments in our emerging market fund, together with China and India. Now I think institutional investors need to understand that Brazil is a volatile market and it\u2019s hard for generalists to stay on top of it. So when we get exposure to Brazil, it\u2019s important to make Brazil a slice of the portfolio and manage risk by diversification of Brazil versus other countries in the world.\u201d<\/p>\n

Listen to the full season of \u201cPension Passport\u201d at investmentreview.com\/podcasts<\/a>. Or download the podcast on Apple<\/a>, Google<\/a> and Stitcher<\/a>.<\/p>\n

Read the full article at BenefitsCanada.com<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

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