What I Learned on the Ninth Floor of One of Brazil’s Top Banks

It’s not easy to get to the ninth floor of Banco Bradesco’s imposing monolith of an office building in downtown São Paulo.

The ninth floor is home to Bradesco BBI, Bradesco’s investment banking business.

Bradesco BBI handles mergers and acquisitions…puts together structured finance deals…brings companies public through IPOs…and looks after the money of high-net-worth individuals through its private banking arm.

It’s one of the top finance houses in Latin America…if not the top.

So when I say it’s not easy to get to the ninth floor, what I mean is you don’t just walk off the street and hop in the elevator.

You need an “in.”

Mine came by way of a contact I met while in Asia earlier this year. (It’s true what they say about travel opening doors.)

In January, I traveled to the “tiger economies” of Singapore, Vietnam, Cambodia and Thailand. In Cambodia I met with Doug Clayton, a very smart former broker who now runs a private equity fund there called Leopard Capital.

Turns out Doug knows Bradesco BBI’s director, Luiz Galvao. And he was kind enough to arrange a meeting. (It’s also true what they say about it being a small world.)

I met with Luiz and Bradesco BBI’s top economist and top equity analyst on Monday. The meeting took place in a boardroom overlooking the sprawling high-rises of São Paulo. And over some strong Brazilian coffee we had a very interesting conversation…

Wall Street analysts – and many individual investors – are wary of Brazil right now. They see rising inflation…an untested new president from the left…and a rising currency.

All of this has stalled the recent rise in the Brazilian stock market, as you can see from the chart below.

But as Luiz, his colleagues and I discussed on Monday, these investors have got it wrong. They’re obsessing over things like inflation and missing the big picture: Brazil is a market with massive long-term potential for patient investors.

You see, even though I’d never met Luiz before…or discussed Brazil’s potential with the his analysts…it turns out we all see a side of this country that Wall Street has overlooked.

And it’s something that is missing in a lot of other emerging markets I’ve visited. In fact, I’d go as far as to say it’s unique to Brazil.

Very simply, Brazil is a “new America.”

I don’t mean that in some kind of abstract, wishy-washy way. I mean it’s the world economy that most resembles the United States

But not the U.S. economy of today. Brazil is much more like America in its post-WWII boom phase. When millions of Americans were entering the middle class. And credit was slowly becoming available throughout the economy. When America was still a big industrial power. And before it started to choke on its own debt.

The more we discussed it, the clearer the similarities became.

  • Brazil is the fifth biggest country in the world by landmass. The U.S. is the third or fourth biggest depending on who compiles the data. Bottom line: both are vast countries similar in size.
  • Brazil is the fifth largest country in the world by population. The U.S. is the third largest. Both have huge populations made up mainly of immigrants.
  • Both countries are rich in natural resources.
  • Both have huge agricultural industries.
  • Both are highly entrepreneurial.
  • Both are “rags to riches” stories. Neither country started out wealthy. Both started out as destinations of mass emigration. Both nations were built on hard work and fortitude.
  • Both are functioning democracies.

This last point may seem trivial. After all, most countries in the world today are democracies. But when you consider the “big four” emerging markets of Brazil, Russia, India and China only Brazil and India are true democracies. China is an obviously autocratic state. And Russia is a less obvious one.

This is hugely important for emerging market investors. Because China and Russia both have a lot of political maturing to do before they really become level playing fields for investors.

That’s not to say there are no opportunities there. There are. But there are going to be some severe bumps along the way.

In Brazil’s case, many of those bumps are behind it. Brazil, for all its flaws, is a democratic nation with a deep sense of purpose. And that’s palpable here. And besides that it has massive natural resource wealth (unlike India).

Over the short term, we may indeed see some stormy waters in Brazil and other emerging markets. But over the long term, Brazil remains a great investment destination for patient investors.

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