Author: BBC Brasil

Source: Folha Online, 28/11/2008

An economic study prepared for the Madrid Stock Exchange, released on Friday, suggests that some of the leading Spanish companies plan to take refuge from the crisis in Brazil and says that the Brazilian and Mexican markets will be a priority for investments in 2009.

The survey by the agencies Gavin Anderson and IE Business School indicates that 75% of the companies on the Ibex 35 index (which includes the largest companies with shares on the Madrid stock exchange) intend to increase investments in Latin America in the face of the recession in Europe and the United States.

The study considers Brazil and Mexico markets more protected from the effects of the global crisis than other countries.

Another attractive factor, according to the report, is the increase in domestic demand. According to the study, 70% of the directors of the main Spanish companies estimate that Latin America's biggest advantage over other emerging markets is in the potential of its domestic markets.

“There was an important growth in the per capita income of the middle class in Brazil, as well as in Mexico and Chile,” economist Juan Carlos Martínez Lázaro, coordinator of the report and professor at IE Business School, told BBC Brazil.

"Currently, these are markets that offer legal certainty and stability thanks to legal reforms, which encourages a greater flow of purchases," he added.

Bad results

Despite the optimism, Spanish analysts say that Latin American markets will also be hit by the crisis.

In a survey of investors, the answer was that 95% expect poor results in the region in 2009, although less than in other countries.

The consulted entrepreneurs also complain about the lack of qualification of the workforce and the threats of political instability.

But they point out that Brazil, Mexico and Chile are better off than their neighbors - mainly in the financial system.

“Latin American banks have learned, through painful experiences, to be overcapitalized and to be conservative,” says analyst Urban Larson, another of the report's authors. "That is why they managed to reach this turbulent moment with solid balance sheets."

"Brazil has very high reserves, and banks continue to give credits," he adds. "A situation very different from what happens in the rest of the world."

Banking sector

Spanish economists put the recently announced merger of the Itaú and Unibanco groups as an example of balance in the Brazilian banking sector.

"This merger will create a very strong financial entity," says Larson. "Contrary to what has been happening in other markets, where mergers occur out of necessity or despair, this operation in Brazil arises from a position of strength, of solidity in the country's financial system."

The report, which is based on the plans of 20 of the 27 companies on the Ibex 35 index with investments in Latin America, also points out which markets should drop off the investor lists.

Argentina, Venezuela and Bolivia concentrate more criticisms and will have less investments because they are considered “high legal uncertainty”.

As for cities, businessmen's favorites for establishing large branches are - according to the study - São Paulo and the Chilean capital, Santiago.