Financial model

Interview with Cassio Antonio Calil, president of JP Morgan’s asset management unit, Brazil

©REUTERS/Paulo Whitaker

Anyone wishing to gauge Brazil’s status as one of the world’s most lucrative emerging markets should look at the growth of its financial sector. 

Industry figures show that the country’s banking sector grew by 317% in 2005- 2010, compared with 244% in Russia and 155% in China over the same period.* They also show Brazil’s stock market going through the ceiling. Trade values rose from BRL400 billion in 2005 to over BRL1,600 billion in 2011. Can and should Brazil keep up this pace in light of global economic uncertainties?

Cassio Antonio Calil is sanguine about the country’s prospects. As president of JP Morgan’s asset management unit in Brazil, charged with expanding the firm’s mutual funds, hedge funds and private banking businesses, he applauds the government’s decision to give a wider berth to private and corporate borrowers, ending the “crowding out effect” caused by its hefty borrowing, which had pushed interest rates out of reach of almost everybody.

By giving investors more room, it has quickened their appetite for risk. “Spread products will be the most promising for years to come,” Mr Calil suggests. “Non-spread products are offered by the government, and investors are searching for ‘alpha’ within the spread products. I don’t know how fast this will grow, but it’s very interesting. People are taking more risks.”

Mr Calil joined JP Morgan in 2004. In mid-2011, he took over the asset management unit based in São Paulo. After nearly 24 years honing his skills in financial markets in Asia, Europe and North America, Mr Calil, a native Brazilian, felt the call to return home, inspired by the country’s unflagging growth and the promise of things to come. He is one of a growing number of expatriate Brazilians whose expertise in global financial markets is being sought out to develop the latent opportunities at home.

Where are those opportunities to be found? “Brazil’s mutual fund industry is the seventh largest in the world,” says Mr Calil. “The industry is worth US$1.1 trillion, and another $300 billion are invested directly in securities outside of mutuals. If all fixed income in Brazil continued to grow at a rate of 10% per year, the sector would grow just with the rate of return from these savings.”

When asked how Brazil kept its head above water during the 2008-2009 economic crisis, even rising above the waves last year, registering its highest growth rate in a decade, he points to Brazil’s fiscal discipline via its primary surplus–the government’s net borrowing and lending, minus its interest payments. “Brazil has been running a primary surplus for a very long time: about 2% of GDP, and remember that this excludes interest rates on servicing government debt. It has also accumulated sizeable foreign reserves over the last 10 years.”

These same factors ought to act as a bulwark against the crisis in the OECD area, particularly the euro zone, and ease worries about its impact on the Brazilian economy. In Mr Calil’s view, there is little to worry about. “The export component to Europe is very small. From the viewpoint of trade, Brazil is not highly dependent on Europe. Our most important trading partner is really China. Brazil exports around 10% of its GDP and soybean and iron ore account for about 60% of its exports. Obviously, those are not going to Europe.”

In the global stock market, the sand in the hourglass has been turned and is running in Brazil’s favour. Mr Calil points out that the MSCI Global Equity Indices, which measure the performance of 1,600 global stocks, allocated a tiny 1% to Brazil in 2006. “But that rose to 2% in 2011. If you look at Europe, it was 19% in 2006 but fell to 16% in 2011. In the UK it was 10% in 2006. It is now 8%. So the market share that the UK, the US and Europe lost has been taken up by emerging markets.”

Brazil’s financial market may be putting on muscle, but it has vulnerable areas. “Brazil needs to become a better services economy,” says Mr Calil. “There is a growing demand for services, such as hotels, airlines, and accounting and legal services–even plumbing. Education is an area that especially needs attention.”

“If we want to catch up with India or Korea, we need more private investment, so that the government doesn’t have to do it. We also have the PAC–the Growth Acceleration Program initiative–which will reach over $570 billion in investments by 2014. What we need to do is to keep investment rates above 25% of GDP. If you look at China, the investment rate is 48% of GDP.”

But exaggerated growth rates have a nasty tendency to produce bubbles. Does Mr Calil foresee a sudden reversal of fortune? Not in the near future, but he does admit that Brazil’s capital markets could use some tweaking, particularly through more developed rules within the Brazilian capital markets to support “conduits”–financial vehicles such as mortgages which hold asset-backed debts financed by short-term loans. But he is confident that Brazil will tie up those loose ends. “The world is beginning to accept Brazil’s economic model,” he says. “I’m very optimistic.”

* Ministry of Finance (April 2011), Brazilian Economic Outlook for 2011.

Visit www.jpmorgan.com/pages/jpmorgan/brazil/en/home

More information on the Brazilian economy: www.brazil.gov.br

©OECD Observer No 287 Q4 2011




Economic data

E-Newsletter

Stay up-to-date with the latest news from the OECD by signing up for our e-newsletter :

Twitter feed

Suscribe now

<b>Subscribe now!</b>

To receive your exclusive print editions delivered to you directly


Online edition
Previous editions

Don't miss

  • Is technological progress slowing down. Is it speeding up? At the OECD, we believe the research from our Future of ‪Productivity‬ project helps to resolve this paradox.
  • An employee prepares breakfast in front of the Eiffel tower at the Parisian luxury hotel Le Plaza Athenee, France July 30, 2015. Nowhere in the world has more accommodation available on Airbnb than Paris. Now the home-sharing website that has transformed budget travel to the French capital is giving its super-deluxe hotels a fright too (©REUTERS/Stephane Mahe).
  • Is inequality bad for growth? That redistribution boosts economies is not established by the evidence says FT economics editor Chris Giles. Read more on www.ft.com.
  • On 19-20 September, come and visit the OECD to learn more about our home and our work.
  • Low interest rates here to stay for half a century, says OECD director Adrian Blundell-Wignall.
  • OECD speak on support it will offer to Greek
  • Bill Gates visited the OECD on 26 June. He met with the Secretary-General Angel Gurría to discuss areas of collaboration with his foundation and participated at a briefing session on official development assistance modernisation with OECD experts.
  • The People’s Republic of China decided to enhance longstanding collaboration with the OECD and to join the OECD Development Centre, in a historic visit by Chinese Premier Li Keqiang on 1 July to the OECD in Paris.
  • In order to face global warming, Asia needs at least $40 billion per year, derived from both the public and private sector. Read how to bridge the climate financing gap on the Asian Bank of Development's website.
  • One dollar in aid for trade generates eight dollars in extra trade for all developing countries and 20 dollars for low-income countries. Read OECD Secretary General's post on the newly released Aid for Trade at a glance 2015.
  • Catherine Mann, OECD Chief Economist, explains on Bloomberg why "too much bank lending can slow economic growth".
  • Interested in a career in Paris at the OECD? The OECD is a major international organisation, with a mission to build better policies for better lives. With our hub based in one of the world's global cities and offices across continents, find out more at www.oecd.org/careers .
  • Come va la vita in Italia? How's life in Italy? The OECD Better Life Index is an interactive online platform in seven languages that goes beyond GDP by offering important insights into measuring well-being and quality of life. Try it for yourself!
  • The IMF calls for a decisive energy subsidy reform in order to use the freed resources to meet critical public spending needs and to reduce pollution ahead of the Paris climate change summit.
  • Have a look at these posters representing a world without fundamental rights at work – including child labour, forced labour and inequality. Read more about this ILO image competition here.
  • Africa vs profit shifting African countries heavily rely on the income generated by multinationals’ taxation, which can represent as much as 88% of a country’s tax base. Little wonder Africa is involved in the OECD’s initiative to address tax base erosion caused by profit shifting, known as BEPS. The need to strengthen inter-governmental co-operation to curb cross-border tax losses was reaffirmed at the Africa Tax Administration Forum (ATAF) in Sandton on 21 April 2015.
  • Africa v. profit shifting
  • After three decades of extraordinary economic development, China is shifting to a slower and more sustainable growth path, according to the OECD's latest Economic Survey of China.
  • In pursuit of the American Dream.

Most Popular Articles

Poll

What issue are you most concerned about in 2015?

Euro crisis
Unemployment
Global warming
International conflict
Other

OECD Insights Blog

NOTE: All signed articles in the OECD Observer express the opinions of the authors
and do not necessarily represent the official views of OECD member countries.

All rights reserved. OECD 2015