Brazil to Foreign Investors: "You're Too Kind, Really"

“We are worried about excessive inflow or excessive growth this year.”

– Luciano Coutinho, president of Brazilian state development bank BNDES 

Don’t laugh, this is serious.  Sometimes too much money coming into an economy chasing every investment opportunity in sight can be dangerous.  Don’t believe me?  Go ask residential RE developers in Vegas. 

Brazil’s economy is red hot and everyone knows it.  The demographics are ridiculously perfect; interest rates are still relatively high, energy independence is not an issue because of the sugar production/ ethanol complex and the buildout for the Olympics in 2014 is now getting underway.  Brazil’s middle class is growing more sophisticated by the day and everyone wants in. 

From Bloomberg: 

Foreign investors are piling money into Latin America’s largest economy as the country builds houses, roads and stadiums for the 2014 World Cup soccer tournament and 2016 Olympic Games in Rio de Janeiro. Gross domestic product has tripled since President Luiz Inacio Lula da Silva came to power in 2003. 

Foreign direct investment will jump 47 percent this year to $38 billion, according to the median forecast of about 100 economists in a central bank survey published this week. International investors added 20.5 billion reais ($11.4 billion) to their stock holdings last year, the most since records began in 1994, as the benchmark Bovespa Index gained 83 percent. 

It’s not really “growth” they are afraid of, it’s poisonous growth of the non-rational sort – the kind that temporarily drives up prices for everything, which Brazil is acutely sensitive to having fought an epic battle against inflation over the last decade. 

Good luck keeping Americans and Europeans desperate for favorable demographics from flinging money at you, Luciano.  They literally can’t help themselves.