The Brazilian currency, the real, recently fell to its lowest level against the US dollar for over a decade. For foreign investors thinking of adding Brazil to their portfolio, this is excellent news and indicates the right time to move into the market. Assets such as property in Brazil are now at their cheapest for years.
Several reasons lie behind the current Brazilian Real and US Dollar exchange balance. The current strength of the US dollar is riding sky high against most currencies reaching near parity with the euro. Falling commodity prices have subsequently seen weakening of the Brazilian Real as the country relies heavily on its commodity exports.
As a result, this combination has produced the lowest real-dollar exchange rate since June 2004. The dollar is now trading at a rate of around R$3.1 per US$1 meaning that investors can now buy more for their money in Brazil than they have been able to for over a decade.
This scenario opens an investment window for foreigners planning to invest in Brazil where assets represent an excellent investment opportunity. Brazilian property is one example – for instance, a luxury villa priced at R$400,000 currently costs US$128,000. Just three years ago when the US dollar-real rate was US$1 to R$1.5, the same villa cost the equivalent of US$266,000.
How long this currency window will remain open is difficult to predict. Currency rates are notoriously difficult to forecast and fluctuations occur on a daily basis. Many analysts, however, believe that the US dollar will not sustain its current strength for much longer for several reasons, but mainly because a long-term strong dollar does not favour the US economy, which is currently creating employment and GDP growth.
This would suggest that now is the time to take advantage of the rock-bottom rate of the real against the dollar. Certainly in terms of currency exchange, the opportunities to invest in Brazil are the best they have been for the last 11 years.
Sources: Financial Times, Guardian